<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION STATEMENT NOS. 333-39875
333-39875-01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY OPERATING
(EXACT NAME OF REGISTRANT AS COMPANY
SPECIFIED IN ITS CHARTER) (EXACT NAME OF REGISTRANT AS SPECIFIED IN
DELAWARE ITS CHARTER)
(STATE OR OTHER JURISDICTION OF DELAWARE
INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF
6798 INCORPORATION OR ORGANIZATION)
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE) 7011
(PRIMARY STANDARD INDUSTRIAL
94-0358820 CLASSIFICATION CODE)
(I.R.S. EMPLOYER IDENTIFICATION NO.) 94-2878485
3030 LBJ FREEWAY (I.R.S. EMPLOYER IDENTIFICATION NO.)
SUITE 1500 3030 LBJ FREEWAY
DALLAS, TX 75234 SUITE 1500
(972) 888-8000 DALLAS, TX 75234
(ADDRESS, INCLUDING ZIP CODE AND (972) 888-8000
TELEPHONE NUMBER, (ADDRESS, INCLUDING ZIP CODE AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICER)
INCLUDING AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICER)
PAUL A. NUSSBAUM PAUL A. NUSSBAUM
CHAIRMAN OF THE BOARD AND CHIEF CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
EXECUTIVE OFFICER OFFICER
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY OPERATING
3030 LBJ FREEWAY COMPANY
SUITE 1500 3030 LBJ FREEWAY
DALLAS, TX 75234 SUITE 1500
(972) 888-8000 DALLAS, TX 75234
(NAME, ADDRESS, INCLUDING ZIP CODE (972) 888-8000
AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE AND
NUMBER, INCLUDING AREA CODE, OF AGENTTELEPHONE NUMBER, INCLUDING AREA CODE, OF
FOR SERVICE) AGENT FOR SERVICE)
--------------
STEPHEN W. CARR, P.C. Copies to: M. CHARLES JENNINGS, ESQ.
GILBERT G. MENNA, P.C. BRYAN E. BISHOP, ESQ.
JOSEPH L. JOHNSON III, ESQ. LOCKE PURNELL RAIN HARRELL
GOODWIN, PROCTER & HOAR LLP (A PROFESSIONAL CORPORATION)
EXCHANGE PLACE 2200 ROSS AVENUE
BOSTON, MA 02109-2881 SUITE 2200
(617) 570-1000 DALLAS, TX 75201
(214) 740-8000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the merger of Wyndham Hotel Corporation with and into Patriot
American Hospitality, Inc. pursuant to an Agreement and Plan of Merger dated
as of April 14, 1997, as amended, described in the enclosed Joint Proxy
Statement/Prospectus and Joint Proxy Statement/Prospectus Supplement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] _____________________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________________________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXPLANATORY NOTE
This Registration Statement includes: (i) a Joint Proxy Statement/Prospectus
Supplement, added by Post-Effective Amendment No. 1, containing information
concerning recent events affecting Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (the "Registrants") and Wyndham
Hotel Corporation ("Wyndham"), including without limitation, the proposed
transaction between the Registrants and Interstate Hotels Company, and (ii)
the Joint Proxy Statement/Prospectus first mailed to stockholders of the
Registrants and Wyndham on or about November 10, 1997, containing information
concerning the proposed transaction between the Registrants and Wyndham and
relating to the securities of the Registrants to be issued in connection with
such transaction.
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY
3030 LBJ FREEWAY OPERATING COMPANY
SUITE 1500 3030 LBJ FREEWAY
DALLAS, TX 75234 SUITE 1500
DALLAS, TX 75234
December 10, 1997
Dear Stockholder:
On November 10, 1997, Patriot American Hospitality, Inc. ("Patriot REIT")
and Patriot American Hospitality Operating Company ("Patriot Operating
Company") mailed to you a Joint Proxy Statement/Prospectus relating to their
Special Meetings of Stockholders (the "Special Meetings") which are being held
to consider and vote upon proposals relating to the proposed merger of Wyndham
Hotel Corporation ("Wyndham") with and into Patriot REIT (the "Patriot/Wyndham
Merger"). Subsequent to the mailing of the Joint Proxy Statement/Prospectus,
Patriot REIT and Patriot Operating Company entered into an Agreement and Plan
of Merger (the "Patriot/IHC Merger Agreement") providing for the merger of
Interstate Hotels Company ("IHC") with and into Patriot REIT with Patriot REIT
being the surviving corporation (the "Patriot/IHC Merger"). If the Patriot/IHC
Merger is consummated, each share of IHC's common stock will be converted into
$37.50 in cash or paired shares of Patriot REIT common stock and Patriot
Operating Company common stock having a value of $37.50, with the stock
consideration subject to adjustment under certain circumstances.
In connection with the execution of the Patriot/IHC Merger Agreement,
Patriot REIT, Patriot Operating Company and Wyndham also amended the Agreement
and Plan of Merger relating to the Patriot/Wyndham Merger (the
"Patriot/Wyndham Merger Agreement") to provide for certain price protection to
Wyndham stockholders if the Patriot/Wyndham Merger is delayed beyond December
31, 1997, to provide certain dividend protection to Wyndham stockholders and
to fix the price per share payable in connection with cash elections by
Wyndham stockholders. This amendment also extends the date after which either
Patriot REIT or Wyndham may terminate the Patriot/Wyndham Merger Agreement
from December 16, 1997 to March 31, 1998.
We are enclosing a Joint Proxy Statement/Prospectus Supplement (the
"Supplement") to provide you with information regarding the Patriot/IHC
Merger, the amendment to the Patriot/Wyndham Merger Agreement and other recent
events affecting Patriot REIT, Patriot Operating Company and Wyndham that may
be relevant to your vote at the Special Meetings. In order for stockholders to
have additional time to receive and review the Supplement, the Special
Meetings have been rescheduled to Wednesday, December 31, 1997, at the Wyndham
Anatole Hotel located at 2201 Stemmons Freeway, Dallas, Texas. The Patriot
REIT Special Meeting will be held at 9:30 a.m. local time and the Patriot
Operating Company Special Meeting will be held at 10:30 a.m. local time. It is
currently anticipated that the closing date of the Patriot/Wyndham Merger will
be January 5, 1998.
At the Special Meetings you will be asked to consider and vote upon three
related proposals (the "Proposals"): (i) a proposal to approve the Agreement
and Plan of Merger, dated as of April 14, 1997, as amended, between Patriot
REIT, Patriot Operating Company and Wyndham, and the transactions contemplated
thereby, including without limitation, the Patriot/Wyndham Merger; (ii) a
proposal to adopt an amendment to the Pairing Agreement, dated February 17,
1983, as amended, between Patriot REIT and Patriot Operating Company; and
(iii) proposals to approve the amendment and restatement of the Certificates
of Incorporation of each of Patriot REIT and Patriot Operating Company.
The Boards of Directors of Patriot REIT and Patriot Operating Company have
each considered the impact of the Patriot/IHC Merger Agreement and the
amendment to the Patriot/Wyndham Merger Agreement and have reconfirmed their
approval of the Patriot/Wyndham Merger. The Boards of Directors of Patriot
REIT and Patriot Operating Company continue to believe that the
Patriot/Wyndham Merger Agreement, as amended, and the
<PAGE>
transactions contemplated thereby are fair to, and in the best interests of,
Patriot REIT, Patriot Operating Company and their respective stockholders.
Accordingly, each of the Boards of Directors of Patriot REIT and Patriot
Operating Company has unanimously approved the Patriot/Wyndham Merger
Agreement, as amended, and the transactions contemplated thereby and
unanimously recommends that you vote in favor of each of the Proposals
presented at the Special Meetings.
We have enclosed a green proxy card with the Supplement. Proxies that have
been properly completed, dated, signed and returned prior to the distribution
of the accompanying Supplement will be voted as directed thereon for or
against or to abstain with respect to each of the Proposals. If you have not
previously voted or if you wish to revoke or change your vote, please
complete, date, sign and return the enclosed green proxy card. It is important
that your paired shares be represented at the Special Meetings, regardless of
the number you hold. We urge all stockholders to vote to approve the
Proposals.
Sincerely,
LOGO
Paul A. Nussbaum
Chairman and Chief Executive Officer
2
<PAGE>
WYNDHAM HOTEL CORPORATION
1950 STEMMONS FREEWAY
SUITE 6001
DALLAS, TX 75207
December 10, 1997
Dear Stockholder:
On November 10, 1997, Wyndham Hotel Corporation ("Wyndham") mailed you a
Notice of Special Meeting of Stockholders and a Joint Proxy
Statement/Prospectus relating to the Special Meeting of Stockholders of
Wyndham (the "Special Meeting") originally scheduled for Friday, December 12,
1997. As a result of recent events, the Special Meeting has been rescheduled
to Wednesday, December 31, 1997, at 8:30 a.m. local time, at the Wyndham
Anatole Hotel located at 2201 Stemmons Freeway, Dallas, Texas. We hope that
you will attend the rescheduled Special Meeting.
At the Special Meeting you will be asked to consider and vote upon a
proposal (the "Proposal") to approve the Agreement and Plan of Merger, dated
as of April 14, 1997, between Patriot American Hospitality, Inc., a Virginia
corporation ("Old Patriot REIT") and predecessor by merger to Patriot American
Hospitality, Inc., a Delaware corporation ("Patriot REIT"), and Wyndham, as
ratified by Patriot REIT and Patriot American Hospitality Operating Company, a
Delaware corporation ("Patriot Operating Company"), and as thereafter amended
(collectively, the "Patriot/Wyndham Merger Agreement"), and the transactions
contemplated thereby, including without limitation the merger of Wyndham with
and into Patriot REIT (the "Patriot/Wyndham Merger") and the related purchase
by Patriot REIT of Wyndham common stock from CF Securities, L.P., the
principal stockholder of Wyndham.
Subsequent to the mailing of the Joint Proxy Statement/Prospectus, Patriot
REIT and Patriot Operating Company entered into an Agreement and Plan of
Merger (the "Patriot/IHC Merger Agreement") providing for the merger of
Interstate Hotels Company ("IHC") with and into Patriot REIT with Patriot REIT
being the surviving corporation (the "Patriot/IHC Merger"). If the Patriot/IHC
Merger is consummated, each share of IHC's common stock will be converted into
$37.50 in cash or paired shares of Patriot REIT common stock and Patriot
Operating Company common stock (the "Paired Shares") having a value of $37.50,
with the stock consideration subject to adjustment under certain
circumstances.
In connection with the execution of the Patriot/IHC Merger Agreement,
Patriot REIT, Patriot Operating Company and Wyndham also amended the
Patriot/Wyndham Merger Agreement to provide, among other things, for certain
price protection to Wyndham stockholders if the Patriot/Wyndham Merger is
delayed beyond December 31, 1997, to provide certain dividend protection to
Wyndham stockholders and to fix the price per share payable in connection with
cash elections by Wyndham stockholders at $42.80 per share. This amendment
also extends the date after which either Patriot REIT or Wyndham may terminate
the Patriot/Wyndham Merger Agreement from December 16, 1997 to March 31, 1998.
It is currently anticipated that the closing date of the Patriot/Wyndham
Merger will be January 5, 1998.
The Board of Directors of Wyndham continues to believe that the
Patriot/Wyndham Merger Agreement, as amended, and the transactions
contemplated thereby are fair to, and in the best interests of, Wyndham and
its stockholders. Accordingly, the Board of Directors of Wyndham has
unanimously approved the Patriot/Wyndham Merger Agreement, as amended, and the
transactions contemplated thereby and unanimously recommends that you vote in
favor of the Proposal presented at the Special Meeting.
<PAGE>
We are enclosing a Joint Proxy Statement/Prospectus Supplement (the
"Supplement") to provide you with information regarding the Patriot/IHC
Merger, the amendment to the Patriot/Wyndham Merger Agreement and other recent
events affecting Patriot REIT, Patriot Operating Company and Wyndham that may
be relevant to your vote at the Special Meeting. In order for stockholders to
have additional time to receive and review the Supplement, the Special Meeting
was rescheduled as indicated above. We urge you to read these materials in
conjunction with the original Joint Proxy Statement/Prospectus.
We have enclosed a red proxy card with the Supplement. Proxies that have
been properly completed, dated, signed and returned prior to the distribution
of the accompanying Supplement will be voted as directed thereon for or
against or to abstain with respect to the Proposals as described in the
Supplement and the Joint Proxy Statement/Prospectus. If you have not
previously voted or if you wish to revoke or change your vote, please
complete, date, sign and return the enclosed red proxy card. If you have
previously completed and returned a proxy card and you do not wish to revoke
or change your vote, you do not need to take any additional action.
As a result of the rescheduling of the Special Meeting, the latest date on
which stockholders may make a cash election is being extended from December
10, 1997 to 5:00 pm, New York City time, on December 31, 1997. If you have
previously submitted a Cash Election Form in order to receive cash in the
Patriot/Wyndham Merger and wish to revoke such election, you should follow the
revocation procedures set forth in the Cash Election Form regarding
revocation.
Sincerely,
LOGO
James D. Carreker
President
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
AND
WYNDHAM HOTEL CORPORATION
JOINT PROXY STATEMENT SUPPLEMENT
(TO JOINT PROXY STATEMENT DATED NOVEMBER 10, 1997)
----------------
PATRIOT AMERICAN HOSPITALITY, INC.
AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED NOVEMBER 10, 1997)
This Joint Proxy Statement/Prospectus Supplement (the "Supplement") is being
furnished by Patriot American Hospitality, Inc., a Delaware corporation
("Patriot REIT"), Patriot American Hospitality Operating Company, a Delaware
corporation ("Patriot Operating Company"), and Wyndham Hotel Corporation, a
Delaware corporation ("Wyndham"), to holders of common stock, par value $.01
per share, of Patriot REIT (the "Patriot REIT Common Stock"), holders of
common stock, par value $.01 per share, of Patriot Operating Company (the
"Patriot Operating Company Common Stock") and holders of common stock, par
value $.01 per share, of Wyndham (the "Wyndham Common Stock"), in connection
with the solicitation of proxies by their respective Boards of Directors for
use at their special meetings of stockholders that were initially scheduled to
be held on Friday, December 12, 1997 (the "Special Meetings"), and at any and
all adjournments and postponements thereof. The Special Meetings are being
held to consider and vote upon proposals relating to the merger of Wyndham
with and into Patriot REIT (the "Merger"). As a result of the Patriot
Companies' execution of a merger agreement (the "Patriot/IHC Merger
Agreement") with Interstate Hotels Company ("IHC") and the related amendment
to the merger agreement between the Patriot Companies and Wyndham (the "Second
Amendment"), the Special Meetings have been rescheduled to permit stockholders
to receive and consider the information contained in this Supplement. The
Special Meetings have been rescheduled for Wednesday, December 31, 1997, at
the Wyndham Anatole Hotel located at 2201 Stemmons Freeway, Dallas, Texas. The
Special Meeting of Wyndham (the "Wyndham Special Meeting") will be held at
8:30 a.m. local time, the Special Meeting of Patriot REIT (the "Patriot REIT
Special Meeting") will be held at 9:30 a.m. local time, and the Special
Meeting of Patriot Operating Company (the "Patriot Operating Company Special
Meeting" and, together with the Patriot REIT Special Meeting, the "Patriot
Special Meetings") will be held at 10:30 a.m. local time. It is currently
anticipated that the closing date of the Merger will be January 5, 1998.
This Supplement is a supplement to and should be read in conjunction with
the Joint Proxy Statement/Prospectus (the "Joint Proxy Statement/Prospectus"),
which was initially mailed to Patriot REIT stockholders, Patriot Operating
Company stockholders and Wyndham stockholders on or about November 10, 1997.
Any statement contained in the Joint Proxy Statement/Prospectus will be deemed
to be modified and superseded to the extent that a statement set forth in this
Supplement, including the Annexes hereto, or in a document subsequently filed
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and incorporated by reference herein, modifies or supersedes such statement.
Capitalized terms used in this Supplement without definition have the meanings
ascribed to them in the Joint Proxy Statement/Prospectus. This Supplement and
the accompanying form of Proxy are first being mailed on or about December 10,
1997.
The purpose of the Patriot Special Meetings is to consider and vote upon
three related proposals (the "Proposals"): (i) a proposal (the "Merger
Proposal") to approve the Agreement and Plan of Merger dated as of April 14,
1997 (the "April Merger Agreement"), as thereafter ratified by Patriot REIT
and Patriot Operating Company pursuant to the Ratification Agreements and as
thereafter amended as discussed below (as amended, the "Merger Agreement"),
between Patriot REIT, Patriot Operating Company and Wyndham, and the
transactions
S-(i)
<PAGE>
contemplated thereby, including, without limitation, the Merger; (ii) a
proposal (the "Pairing Agreement Amendment Proposal") to adopt an amendment
(the "Pairing Agreement Amendment") to the Pairing Agreement dated February
17, 1983, as amended, between Patriot REIT and Patriot Operating Company; and
(iii) proposals (the "Patriot Charter Amendment Proposals") to approve the
amendment and restatement of the Certificates of Incorporation of Patriot REIT
and Patriot Operating Company (the "Restated Charters"). The purpose of the
Wyndham Special Meeting is to consider and vote upon the Merger Proposal. The
Proposals to be considered at the Patriot Special Meetings are described in
the Joint Proxy Statement/Prospectus. Certain changes to the Merger Proposal
resulting from the Second Amendment are described in this Supplement.
As described in the Joint Proxy Statement/Prospectus, the April Merger
Agreement (as amended by Amendment No. 1 thereto (the "First Amendment"))
provides for the merger of Wyndham with and into Patriot REIT with Patriot
REIT being the surviving company. The terms of the April Merger Agreement (as
amended by the First Amendment) provide that each share of Wyndham Common
Stock generally will be converted into 1.372 Paired Shares; provided, however,
that if the average closing price of a Paired Share over the 20 trading days
immediately preceding the fifth business day prior to the Wyndham Special
Meeting (the "Patriot Average Closing Price") is less than $21.86 but greater
than or equal to $20.87, each share of Wyndham Common Stock will be converted
into the number of Paired Shares equal to $30.00 divided by the Patriot
Average Closing Price, and, in the event that the Patriot Average Closing
Price is less than $20.87, each share of Wyndham Common Stock will be
converted into 1.438 Paired Shares (the applicable conversion ratio being
referred to herein as the "Exchange Ratio"), unless Wyndham exercises its
right to terminate the Merger Agreement in such event. Pursuant to the Second
Amendment, the Exchange Ratio is now subject to adjustment so that if the
Effective Time of the Merger does not occur on or prior to December 31, 1997,
other than as a result of the failure, caused by Wyndham, of certain closing
conditions to be satisfied (a "Wyndham Delay"), and the Patriot Average
Closing Price is less than $27.50 but greater than or equal to $25.50, the
Exchange Ratio will be adjusted so that each share of Wyndham Common Stock,
other than shares as to which Cash Consideration is to be received, will be
converted into the right to receive the number of Paired Shares equal to
$37.73 divided by the Patriot Average Closing Price. If the Effective Time of
the Merger does not occur on or prior to December 31, 1997 other than as a
result of a Wyndham Delay, and the Patriot Average Closing Price is less than
$25.50, the Exchange Ratio will be adjusted so that each share of Wyndham
Common Stock, other than shares as to which Cash Consideration is to be
received, will be converted into the right to receive 1.480 Paired Shares,
provided, however, that in such circumstances Wyndham has the right, waivable
by it, to terminate the Merger Agreement.
The Second Amendment also provides that stockholders of Wyndham will be
entitled to receive additional cash consideration under certain circumstances
in the event that the Merger is not consummated on or prior to January 5, 1998
as described in this Supplement. In addition, the Second Amendment provides
that if any dividend is declared on the Patriot REIT Common Stock or the
Patriot Operating Company Common Stock the record date for which is on or
after November 26, 1997 but prior to the Merger, stockholders of Wyndham will
receive additional consideration in the Merger that will result in such
stockholders receiving the economic benefit of the dividend as if they had
been holders of Paired Shares on the dividend record date.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
under the Merger Agreement to elect to receive cash, and CF Securities has an
equivalent right under the Stock Purchase Agreement; provided, however, that
the maximum aggregate amount of cash to be paid to Wyndham stockholders and CF
Securities pursuant to such Cash Election rights will be a total of $100
million. Pursuant to the Second Amendment, Patriot REIT, Patriot Operating
Company and Wyndham also agreed to change the amount per share payable upon a
Cash Election to a fixed amount so that stockholders of Wyndham who make a
Cash Election will be entitled to receive Cash Consideration in an amount per
share equal to $42.80. Prior to the execution of the Second Amendment, the
Merger Agreement provided that stockholders of Wyndham who made a Cash
Election would have been entitled to receive Cash Consideration in an amount
per share determined by reference to the average closing price of Paired
Shares on the NYSE on the five trading days preceding the closing date of the
Merger. In the event that holders of Wyndham Common Stock and CF Securities
elect to receive more than $100 million in cash, such cash will be allocated
on a pro rata basis among such stockholders and CF Securities based on the
S-(ii)
<PAGE>
respective number of shares of Wyndham Common Stock as to which they have
elected to receive cash, and the Wyndham stockholders (other than CF
Securities) will receive Paired Shares at the Exchange Ratio for their shares
of Wyndham Common Stock which are not converted into Cash Consideration. CF
Securities has delivered to Patriot REIT a Cash Election pursuant to which CF
Securities has elected to receive Cash Consideration with respect to all
9,447,745 shares of Wyndham Common Stock beneficially owned by CF Securities.
Consequently, the maximum amount of cash available to be paid to other holders
of Wyndham Common Stock in the Merger is expected to be approximately $56.3
million. If no other stockholders of Wyndham make a Cash Election, CF
Securities will receive the entire $100 million of cash available for Cash
Elections. For a more complete description of the Merger Agreement and the
terms of the Merger, see "Summary--General," "Summary--The Merger and
Subscription" and "The Merger and Subscription--Terms of the Merger and
Subscription" in the Joint Proxy Statement/Prospectus and "Recent
Developments--Wyndham Consent to Patriot/IHC Merger and Related Amendment to
Wyndham Merger Agreement--Patriot/Wyndham Merger Agreement Amendment" in this
Supplement.
Subsequent to the mailing of the Joint Proxy Statement/Prospectus, Patriot
REIT and Patriot Operating Company entered into the Patriot/IHC Merger
Agreement with IHC that provides for the merger of IHC with and into Patriot
REIT, with Patriot REIT being the surviving corporation (the "Patriot/IHC
Merger"). If the Patriot/IHC Merger is consummated, approximately 40% of the
total issued and outstanding shares of common stock, par value $.01 per share,
of IHC (the "IHC Common Stock") will be converted into the right to receive
$37.50 in cash (the "Patriot/IHC Cash Consideration") and the remaining
approximately 60% of IHC Common Stock will be converted into the right to
receive Paired Shares having a value of $37.50 pursuant to an exchange ratio
(the "Patriot/IHC Exchange Ratio") based on an average closing price of the
Paired Shares over a specified period prior to the meeting of stockholders of
IHC relating to the Patriot/IHC Merger (the "Patriot/IHC Average Closing
Price"). The Patriot/IHC Exchange Ratio may be adjusted under certain
circumstances depending on the Patriot/IHC Average Closing Price. The
Patriot/IHC Merger is subject to certain conditions, including approval of the
Patriot/IHC Merger Agreement by the stockholders of Patriot REIT, Patriot
Operating Company and IHC.
In connection with the execution of the April Merger Agreement, Patriot
REIT's operating partnership entered into an Omnibus Purchase and Sale
Agreement and a series of individual purchase and sale agreements with certain
Crow Family Entities providing for the acquisition of up to 11 full-service
Wyndham-branded hotels from the Crow Family Entities for an aggregate purchase
price of $331.7 million in cash plus up to $14 million in additional cash
consideration if two of the hotels meet certain cash flow targets. In
connection with the execution of the Patriot/IHC Merger Agreement, the Patriot
REIT Partnership and the Crow Family Entities agreed in principle that the
closing of these transactions would be scheduled for December 16, 1997 as to a
number of hotels sufficient to satisfy the condition in the Omnibus Purchase
and Sale Agreement that the stipulated net operating income attributable to
the purchased hotels exceeds the minimum level required under the Omnibus
Purchase and Sale Agreement (which will also satisfy a similar condition in
the Merger Agreement), and that they would waive any conditions to the closing
that the Merger be consummated concurrently therewith. The parties further
agreed that if the Merger fails to close by March 31, 1998, then additional
consideration will be required under certain circumstances to be paid for the
hotels as described in this Supplement.
S-(iii)
<PAGE>
Patriot REIT and Patriot Operating Company have filed a Registration
Statement on Form S-4 (the "Registration Statement") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
issuance of (i) up to 32,570,537 Paired Shares to be issued to stockholders of
Wyndham and to CF Securities in connection with the transactions contemplated
by the Merger Agreement and the Stock Purchase Agreement, (ii) up to
13,585,857 shares of Series A Convertible Preferred Stock, par value $.01 per
share, of Patriot REIT (the "Series A Preferred Stock") to be issued to CF
Securities in connection with the transactions contemplated by the Stock
Purchase Agreement, (iii) up to 13,585,857 Paired Shares to be issued to CF
Securities upon conversion of shares of Series A Preferred Stock, and (iv) the
offering and resale from time to time of up to 20,326,267 Paired Shares by
certain stockholders of Wyndham (including the Paired Shares issuable upon
conversion of the shares of Series A Preferred Stock). In addition to
constituting the Joint Proxy Statement for the Special Meetings of Patriot
REIT, Patriot Operating Company and Wyndham, the Joint Proxy
Statement/Prospectus, as amended and supplemented by this Supplement,
constitutes the Prospectus of Patriot REIT and Patriot Operating Company with
respect to the aforementioned Paired Shares and shares of Series A Preferred
Stock.
Any stockholders who would like information with respect to the Exchange
Ratio may call MacKenzie Partners, Inc., the proxy solicitor for Patriot REIT,
Patriot Operating Company and Wyndham, at 1-800-322-2885. MacKenzie Partners,
Inc. will provide to any requesting stockholder an estimate of the Exchange
Ratio as of any date prior to the final determination of the Exchange Ratio.
MacKenzie Partners, Inc. also will provide instructions on how to submit
proxies in a timely manner, including for any stockholder who wishes to wait
until the Exchange Ratio is finally determined. In addition, any Patriot REIT,
Patriot Operating Company or Wyndham stockholder who wishes to change his or
her or its vote relating to any proposal may do so by transmitting a properly
executed proxy via facsimile to MacKenzie Partners, Inc. at (212) 929-0308.
Proxies that have been properly completed, dated, signed and returned prior to
the distribution of this Supplement will be voted as directed thereon for or
against or to abstain with respect to each of the Proposals as described in
this Supplement and the Joint Proxy Statement/Prospectus.
As a result of the rescheduling of the Special Meetings, the latest date on
which stockholders of Wyndham may make a Cash Election is being extended from
December 10, 1997 to 5:00 p.m., New York City time, on December 31, 1997. Any
stockholder who has previously submitted a Cash Election Form in order to
receive Cash Consideration in the Merger and who wishes to revoke such Cash
Election may do so by following the revocation procedures set forth under
Instruction F in the Cash Election Form. Stockholders needing assistance in
effecting such revocation should contact either MacKenzie Partners, Inc. at 1-
800-322-2885 or American Stock Transfer & Trust Company, the Exchange Agent
for the Merger, at 1-212-929-5500 collect.
This supplement should be read carefully and should be read in conjunction
with the Joint Proxy Statement/Prospectus, which was initially mailed to
stockholders of Patriot REIT, Patriot Operating Company and Wyndham on or
about November 10, 1997. Any stockholder may obtain a copy of the Joint Proxy
Statement/Prospectus dated November 10, 1997, free of charge, by contacting
MacKenzie Partners, Inc. at 1-800-322-2885.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THE JOINT PROXY STATEMENT/PROSPECTUS
OR THIS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS
SUPPLEMENT OR THE JOINT PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION NOT CONTAINED HEREIN OR THEREIN MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS SUPPLEMENT AND THE JOINT
S-(iv)
<PAGE>
PROXY STATEMENT/PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES OFFERED BY THIS
SUPPLEMENT OR THE JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR PROXY SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS SUPPLEMENT OR THE JOINT
PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES
HEREUNDER OR THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED
HEREIN OR THEREIN SINCE THE DATE HEREOF.
The date of this Joint Proxy Statement/Prospectus Supplement is December 10,
1997
S-(v)
<PAGE>
AVAILABLE INFORMATION
Patriot REIT, Patriot Operating Company and Wyndham are each subject to the
informational reporting requirements of the Exchange Act and in accordance
therewith file reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by Patriot REIT,
Patriot Operating Company and Wyndham can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and may be
available at the following Regional Offices of the Commission: Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and New York Regional Office, 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such materials can be obtained
at prescribed rates from the Public Reference Section of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Patriot REIT,
Patriot Operating Company and Wyndham are also required to file electronic
versions of these documents with the Commission through the Commission's
Electronic Data Gathering Analysis and Retrieval (EDGAR) system. The
Commission maintains a world wide web site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. In addition,
reports, proxy and information statements and other information concerning
Patriot REIT, Patriot Operating Company and Wyndham can be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005, on which the
Paired Shares and the Wyndham Common Stock are currently listed.
This Supplement and the Joint Proxy Statement/Prospectus do not contain all
the information set forth in the Registration Statement and exhibits relating
thereto, including any amendments, of which this Supplement and the Joint
Proxy Statement/Prospectus are a part, and which Patriot REIT and Patriot
Operating Company have filed with the Commission under the Securities Act.
Reference is made to such Registration Statement for further information with
respect to Patriot REIT, Patriot Operating Company and Wyndham and the Paired
Shares and shares of Series A Preferred Stock offered pursuant to this
Supplement and the Joint Proxy Statement/Prospectus. Statements contained
herein or therein or incorporated herein or therein by reference concerning
the provisions of documents are summaries of such documents. Each statement is
qualified in its entirety by reference to the copy of the applicable document
if filed with the Commission or attached as an annex hereto or thereto.
S-(vi)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Supplement and the Joint Proxy
Statement/Prospectus:
PATRIOT REIT AND PATRIOT OPERATING COMPANY
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated (i) July 1, 1997 (Nos.
001-09319 and 001-09320 filed July 15, 1997), (ii) July 15, 1997 (Nos. 001-
09319 and 001-09320 filed July 21, 1997), (iii) July 22, 1997 (Nos. 001-09319
and 001-09320 filed July 22, 1997), (iv) September 17, 1997 (Nos. 001-09319
and 001-09320 filed September 17, 1997), (v) September 30, 1997, as amended
(Nos. 001-09319 and 001-09320 filed October 14, 1997 and October 28, 1997),
(vi) September 30, 1997 (Nos. 001-09319 and 001-09320 filed November 12,
1997), (vii) December 2, 1997 (Nos. 001-09319 and 001-09320 filed December 4,
1997) and (viii) December 10, 1997 (Nos. 001-09319 and 001-09320 filed
December 10, 1997);
2. The description of the Paired Shares of Patriot REIT Common Stock and
Patriot Operating Company Common Stock contained or incorporated by reference
in Patriot REIT's and Patriot Operating Company's Registration Statement on
Form 8-A (Nos. 001-09319, 001-09320), including any amendments thereto;
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320) for
the fiscal quarter ended June 30, 1997; and
4. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320) for
the fiscal quarter ended September 30, 1997.
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
1. Annual Report on Form 10-K of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal year ended
December 31, 1996;
2. Current Reports on Form 8-K of California Jockey Club and Bay Meadows
Operating Company dated (i) February 24, 1997 (Nos. 001-09319, 001-09320 filed
March 3, 1997) and (ii) May 28, 1997 (Nos. 001-09319, 001-09320 filed June 5,
1997);
3. Quarterly Report on Form 10-Q of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter ended
March 31, 1997; and
4. Quarterly Report on Form 10-Q/A of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter ended
March 31, 1997 (filed May 16, 1997).
PATRIOT AMERICAN HOSPITALITY, INC. (OLD PATRIOT REIT)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc. (No.
001-13898) for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Patriot American Hospitality, Inc. dated
(i) April 2, 1996, as amended (No. 001-13898 filed April 17, 1996 and June 14,
1996), (ii) December 5, 1996 (No. 001-13898 filed December 5, 1996), (iii)
January 16, 1997, as amended (No. 001-13898 filed January 31, 1997, February
21, 1997, April 8, 1997, April 9, 1997 and May 19, 1997), (iv) February 24,
1997 (No. 001-13898 filed March 3, 1997) and (v) April 14, 1997, as amended
(No. 001-13898 filed April 17, 1997 and April 18, 1997); and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. (No.
001-13898) for the fiscal quarter ended March 31, 1997.
S-(vii)
<PAGE>
WYNDHAM
1. Annual Report on Form 10-K of Wyndham Hotel Corporation (No. 001-11723)
for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Wyndham Hotel Corporation dated (i) April
14, 1997 (No. 001-11723, filed April 23, 1997) and (ii) July 31, 1997 (No.
001-11723, filed August 15, 1997);
3. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended March 31, 1997;
4. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended March 31, 1997 (filed June 2, 1997);
5. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended June 30, 1997;
6. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended June 30, 1997 (filed August 29, 1997);
7. Proxy Statement of Wyndham Hotel Corporation (No. 001-11723) for the
Annual Meeting of Stockholders held April 28, 1997 (filed March 27, 1997);
8. Current Report on Form 8-K/A of Wyndham Hotel Corporation dated September
18, 1997 (No. 001-11723, filed September 18, 1997); and
9. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended September 30, 1997.
In addition, all reports and other documents filed by each of Patriot REIT,
Patriot Operating Company and Wyndham pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
Patriot REIT Special Meeting, the Patriot Operating Company Special Meeting
and the Wyndham Special Meeting shall be deemed to be incorporated by
reference herein and to be made a part hereof from the date of filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Supplement or the Joint Proxy
Statement/Prospectus to the extent that a statement contained herein, or in
any other subsequently filed document that also is incorporated or deemed to
be incorporated by reference herein or therein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Supplement
or the Joint Proxy Statement/Prospectus.
Also, all reports and other documents filed by Patriot REIT and Patriot
Operating Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date hereof and prior to the termination of the
offering by the Registration Rights Holders of Paired Shares (as described in
this Supplement under the caption "Recent Developments--Plan of Distribution"
and in the Joint Proxy Statement/Prospectus under the caption "Plan of
Distribution") shall be deemed to be incorporated by reference herein and to
be made a part hereof from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Supplement and the Joint Proxy Statement/Prospectus to
the extent that a statement contained herein or therein, or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated by reference herein or therein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded to constitute a part of this Supplement
and the Joint Proxy Statement/Prospectus.
S-(viii)
<PAGE>
THIS SUPPLEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT INCLUDING EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST OF
ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS SUPPLEMENT IS
DELIVERED BY DIRECTING REQUESTS AS FOLLOWS: IN THE CASE OF DOCUMENTS RELATING
TO PATRIOT REIT OR PATRIOT OPERATING COMPANY, 3030 LBJ FREEWAY, SUITE 1500,
DALLAS, TEXAS 75234, ATTENTION: SHAREHOLDER RELATIONS (TELEPHONE NO. (972)
888-8000), OR, IN THE CASE OF DOCUMENTS RELATING TO WYNDHAM, 1950 STEMMONS
FREEWAY, SUITE 6001, DALLAS, TEXAS 75207, ATTENTION: CARLA S. MORELAND
(TELEPHONE NO. (214) 863-1000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY DECEMBER 23, 1997.
S-(ix)
<PAGE>
TABLE OF CONTENTS
AND INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
RECENT DEVELOPMENTS....................................................... S-1
Patriot/IHC Merger...................................................... S-1
Risks Relating to Patriot/IHC Merger.................................... S-3
Wyndham Consent to Patriot/IHC Merger and Related Amendment to Wyndham
Merger Agreement....................................................... S-4
Omnibus Purchase and Sale Agreement Amendment........................... S-10
Revolving Credit Facility and Term Loan................................. S-11
Wyndham Debt Tender Offer............................................... S-11
Wyndham Litigation Settlement........................................... S-11
Opinions of Financial Advisors.......................................... S-12
Certain Federal Income Tax Considerations and Developments.............. S-19
Plan of Distribution.................................................... S-20
SELECTED FINANCIAL INFORMATION............................................ S-21
PRO FORMA FINANCIAL INFORMATION
Patriot REIT and Patriot Operating Company:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited). ........................................ S-50
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). ................................. S-52
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited). ....................................... S-55
Patriot REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... S-57
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... S-60
Patriot Operating Company:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... S-63
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). .......................... S-66
Combined Lessees:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September
30, 1997 (unaudited) .................................................. S-70
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED FOR THE WYNDHAM
TRANSACTIONS
Patriot REIT and Wyndham International:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... S-76
Pro Forma Condensed Combined Statement of Operations for the nine months
ended September 30, 1997 (unaudited). ................................. S-78
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)......................................... S-81
Patriot REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... S-84
</TABLE>
S-(x)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-86
Wyndham International:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)......................................... S-88
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-90
Combined Lessees:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the nine months ended September
30, 1997 (unaudited).................................................. S-93
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED FOR THE WHG MERGER
Patriot REIT and Wyndham International:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)......................................... S-96
Pro Forma Condensed Combined Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-97
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)........................................ S-99
Wyndham International:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)......................................... S-101
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-102
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
Patriot REIT and Wyndham International:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited)......................................... S-107
Pro Forma Condensed Combined Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-108
Pro Forma Condensed Combined Balance Sheet as of
September 30, 1997 (unaudited)........................................ S-110
Patriot REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)......................................... S-113
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-115
Wyndham International:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited)......................................... S-117
Pro Forma Condensed Consolidated Statement of Operations for the nine
months ended September 30, 1997 (unaudited). ......................... S-119
</TABLE>
HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Patriot REIT and Patriot Operating Company:
Combined Balance Sheets as of September 30, 1997 (unaudited) and Decem-
ber 31, 1996.......................................................... S-121
Combined Statements of Operations for the three months ended September
30, 1997 and 1996 and the nine months ended September 30, 1997 and
1996 (unaudited)...................................................... S-122
Combined Statements of Cash Flows for the nine months ended September
30, 1997 and 1996 (unaudited)......................................... S-123
</TABLE>
S-(xi)
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Patriot REIT:
Consolidated Balance Sheets as of September 30, 1997 (unaudited) and
December 31, 1996..................................................... S-124
Consolidated Statements of Operations for the three months ended Sep-
tember 30, 1997 and 1996 and the nine months ended September 30, 1997
and 1996 (unaudited).................................................. S-125
Consolidated Statements of Cash Flows for the nine months ended Septem-
ber 30, 1997 and 1996 (unaudited)..................................... S-126
Patriot Operating Company:
Consolidated Balance Sheet as of September 30, 1997 (unaudited)........ S-127
Consolidated Statement of Operations for the three months ended
September 30, 1997 (unaudited)........................................ S-128
Consolidated Statement of Cash Flows for the three months ended
September 30, 1997 (unaudited)........................................ S-129
Notes to Financial Statements as of September 30, 1997 (unaudited)...... S-130
Wyndham:
Consolidated Balance Sheets as of December 31, 1996 and September 30,
1997 (unaudited)....................................................... S-153
Consolidated Statements of Income for the three months ended September
30, 1996 and 1997 and the nine months ended September 30, 1996 and 1997
(unaudited)............................................................ S-154
Consolidated Statements of Cash Flows for the nine months ended Septem-
ber 30, 1996 and 1997
(unaudited)............................................................ S-155
Notes to Consolidated Financial Statements.............................. S-156
Interstate Hotels Company:
Report of Independent Accountants -- Coopers & Lybrand L.L.P. .......... S-166
Consolidated Balance Sheets as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited)......................................... S-167
Consolidated Statements of Operations for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and
1997 (unaudited)....................................................... S-168
Consolidated Statements of Shareholders' Equity for the years ended De-
cember 31, 1994, 1995 and 1996 and the nine months ended September 30,
1997 (unaudited)....................................................... S-169
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1996 and
1997 (unaudited)....................................................... S-170
Notes to Consolidated Financial Statements.............................. S-171
INTERSTATE HOTELS COMPANY--UNAUDITED PRO FORMA FINANCIAL INFORMATION
Pro Forma Statement of Income for the year ended December 31, 1996 (un-
audited)............................................................... S-187
Pro Forma Statement of Income for the nine months ended September 30,
1997 (unaudited)....................................................... S-188
Notes to Pro Forma Statements of Income................................. S-189
LEGAL MATTERS ............................................................ S-190
EXPERTS .................................................................. S-190
ANNEXES
S-A. Amendment No. 2 to Agreement and Plan of Merger between Patriot
REIT, Patriot Operating Company and Wyndham
S-B. Opinion of Smith Barney Inc.
S-C. Opinion of PaineWebber Incorporated
</TABLE>
S-(xii)
<PAGE>
RECENT DEVELOPMENTS
PATRIOT/IHC MERGER
On December 2, 1997, Patriot REIT and Patriot Operating Company entered into
the Patriot/IHC Merger Agreement with IHC, pursuant to which IHC will merge
with and into Patriot REIT with Patriot REIT being the surviving corporation.
As a result of the Patriot/IHC Merger, Patriot REIT will acquire all of the
assets and liabilities of IHC, including IHC's portfolio of 222 owned, leased
or managed hotels located in the United States, Canada, the Caribbean and
Russia. Of IHC's portfolio, 40 hotels aggregating approximately 11,580 rooms
are owned or controlled by IHC, 90 hotels aggregating approximately 10,354
rooms are leased and 92 hotels aggregating approximately 23,183 rooms are
managed or subject to service agreements. IHC operates its hotels under a
variety of brand names, including Marriott(R), Embassy Suites(R), Hilton(TM),
Holiday Inn(R), Radisson (TM), Westin(R), Sheraton(TM), Doubletree(TM),
Residence Inn(TM), Hampton Inn(R), Comfort Inn(TM), Homewood Suites(TM) and
Colony(R). As a result of the Patriot/IHC Merger, Patriot REIT will assume or
refinance all of IHC's existing indebtedness, which totaled approximately $790
million as of December 2, 1997.
Upon consummation of the Patriot/IHC Merger, and subject to proration as
described below, IHC stockholders may elect to convert their shares of IHC
Common Stock into the right to receive either (i) Patriot/IHC Cash
Consideration consisting of an amount of cash equal to $37.50 per share of IHC
Common Stock, or (ii) Paired Shares at the Patriot/IHC Exchange Ratio. The
Patriot/IHC Merger Agreement provides that, except under certain circumstances
involving the payment of cash to IHC stockholders who exercise dissenters'
appraisal rights in connection with the Patriot/IHC Merger, approximately 40%
of the total issued and outstanding shares of IHC Common Stock (the "IHC
Outstanding Shares") will be converted into the right to receive the
Patriot/IHC Cash Consideration and the remaining approximately 60% of the IHC
Outstanding Shares will be converted into the right to receive Paired Shares
at the Patriot/IHC Exchange Ratio. Accordingly, the aggregate Patriot/IHC Cash
Consideration (the "Aggregate Patriot/IHC Cash Consideration") to be received
by holders of IHC Common Stock who receive Patriot/IHC Cash Consideration
generally will be an amount equal to 40% of the IHC Outstanding Shares
multiplied by $37.50, or an aggregate of approximately $530 million based on
the number of shares of IHC Common Stock outstanding as of December 1, 1997.
The aggregate number of Paired Shares to be received by holders of IHC Common
Stock who receive Paired Shares in the Patriot/IHC Merger (the "Aggregate
Paired Share Consideration") generally will equal 60% of the IHC Outstanding
Shares multiplied by the Patriot/IHC Exchange Ratio. Upon consummation of the
Patriot/IHC Merger, holders of outstanding options to acquire IHC Common Stock
will receive cash in an amount equal to the spread between the exercise price
of such options and $37.50, except that certain senior executives of IHC may
elect to have their options assumed by Patriot REIT.
The Patriot/IHC Merger Agreement provides that, in the event that the
holders of IHC Outstanding Shares elect to receive Patriot/IHC Cash
Consideration with respect to more than 14,168,500 shares of IHC Common Stock
(approximately 40% of the IHC Outstanding Shares), such holders will receive
the Aggregate Patriot/IHC Cash Consideration on a pro rata basis based on the
respective numbers of shares of IHC Common Stock with respect to which each
such holder has elected to receive Patriot/IHC Cash Consideration. Under such
circumstances, such holders' remaining shares of IHC Common Stock that are not
converted into the right to receive Patriot/IHC Cash Consideration will be
converted into the right to receive Paired Shares at the Patriot/IHC Exchange
Ratio. In the event that the aggregate number of shares of IHC Common Stock
with respect to which the holders thereof have elected to receive Paired
Shares at the Patriot/IHC Exchange Ratio is greater than approximately 60% of
the IHC Outstanding Shares, such holders will receive the Aggregate Paired
Share Consideration on a pro rata basis based on the respective numbers of
shares of IHC Common Stock with respect to which each such holder has elected
to receive Paired Shares. Under such circumstances, such holders' remaining
shares of IHC Common Stock that are not converted into the right to receive
Paired Shares will be converted into the right to receive Patriot/IHC Cash
Consideration.
Under the terms of the Patriot/IHC Merger Agreement and subject to proration
as described above, each issued and outstanding share of IHC Common Stock with
respect to which the holder thereof has made an
S-1
<PAGE>
election to receive Paired Shares in the Patriot/IHC Merger generally will be
converted into the right to receive a number of Paired Shares equal to $37.50
divided by the Patriot/IHC Average Closing Price. However, the Patriot/IHC
Exchange Ratio is subject to adjustment if the Patriot/IHC Average Closing
Price is less than $27.97 or greater than $34.186. If the Patriot/IHC Average
Closing Price is less than $27.97 but greater than or equal to $26.416, the
Patriot/IHC Exchange Ratio will be equal to 1.341. If the Patriot/IHC Average
Closing Price is greater than $34.186 but less than or equal to $37.294
($38.848, if the Patriot/IHC Merger is consummated after March 30, 1998), the
Patriot/IHC Exchange Ratio will be equal to 1.097. If the Patriot/IHC Average
Closing Price is greater than $37.294 ($38.848, if the Patriot/IHC Merger is
consummated after March 30, 1998), the Patriot/IHC Exchange Ratio will be
equal to $40.912 ($42.616, if the Patriot/IHC Merger is consummated after
March 30, 1998) divided by the Patriot/IHC Average Closing Price. If the
Patriot/IHC Average Closing Price is less than $26.416, the Patriot/IHC
Exchange Ratio will be equal to 1.341, but IHC will have the right to
terminate the Patriot/IHC Merger Agreement unless Patriot REIT decides to
increase the Patriot/IHC Exchange Ratio to an amount equal to $35.424 divided
by the Patriot/IHC Average Closing Price and in the event Patriot REIT
exercises such right IHC will no longer have the right to terminate the
Patriot/IHC Merger Agreement.
The Patriot/IHC Merger is subject to various conditions including, without
limitation, approval of the Patriot/IHC Merger by the stockholders of Patriot
REIT, Patriot Operating Company and IHC. Subject to the terms of a
shareholders agreement, certain shareholders of IHC have agreed with Patriot
REIT and Patriot Operating Company to vote 19.9% of the outstanding shares of
IHC Common Stock in favor of the Patriot/IHC Merger. It is currently
anticipated that the Patriot/IHC Merger will be consummated in the first
quarter of 1998. In the event that the Patriot/IHC Merger Agreement is
terminated under certain circumstances, including in order to allow IHC to
pursue a superior proposal (as defined in the Patriot/IHC Merger Agreement),
IHC will be required to pay Patriot REIT a break-up fee of $50 million.
Likewise, if the Patriot/IHC Merger Agreement is terminated by IHC as a result
of Patriot REIT's failure to recommend approval of the Patriot/IHC Merger to
its stockholders, Patriot REIT will be required to pay a $50 million break-up
fee to IHC.
The pro forma combined assets of Patriot REIT and Patriot Operating Company
at September 30, 1997 assuming consummation of the Patriot/IHC Merger would be
approximately $6.2 billion (which also assumes consummation of the Merger and
the Related Transactions, the Crow Assets Acquisition, the CHCI Merger, and
the WHG Merger), of which approximately 62% would be attributable to Patriot
REIT and Patriot Operating Company combined and approximately 38% would be
attributable to IHC. In addition, the pro forma combined revenues of Patriot
REIT and Patriot Operating Company for the year ended December 31, 1996 and
the nine months ended September 30, 1997 assuming consummation of the
Patriot/IHC Merger would be approximately $1.9 billion and $1.5 billion,
respectively (which also assumes consummation of the Merger and the Related
Transactions, the Crow Assets Acquisition, the CHCI Merger and the WHG
Merger), of which approximately 61% and 62%, respectively, would be
attributable to Patriot REIT and Patriot Operating Company combined and
approximately 39% and 38%, respectively, would be attributable to IHC. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
In connection with the Patriot/IHC Merger, W. Thomas Parrington, Jr.,
President, Chief Executive Officer and a director of IHC, is expected to
become the Vice Chairman of Wyndham International and Milton Fine, Chairman of
the Board of Directors of IHC, is expected to become a member of the Patriot
REIT Board.
In connection with the execution of the Patriot/IHC Merger Agreement,
Patriot REIT entered into a non-binding letter of intent with Marriott
International, Inc. ("Marriott") which provides for Patriot REIT's termination
of franchise agreements relating to ten Marriott hotels currently owned and
operated by IHC and the conversion of these hotels to the Wyndham brand (the
"Marriott Letter of Intent"). In return, Marriott will assume management of
ten franchised Marriott hotels currently owned and operated by IHC for the
term of the franchise agreements. Subsidiaries controlled by Wyndham
International will continue to operate 36 franchised Marriott hotels which are
owned by third parties.
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RISKS RELATING TO PATRIOT/IHC MERGER
There are certain risks to stockholders of Patriot REIT, Patriot Operating
Company and Wyndham associated with the Patriot/IHC Merger. These risks
include, without limitation, the risks described below.
Pro Forma Dilution. The Patriot/IHC Merger would have a dilutive effect on
net income per Paired Share on a pro forma combined basis for the year ended
December 31, 1996 and the nine months ended September 30, 1997. The Unaudited
Pro Forma Condensed Combined Financial Statements contained herein illustrate
the effect of the Patriot/IHC Merger on the net income per Paired Share for
the year ended December 31, 1996 and the nine months ended September 30, 1997.
On a pro forma combined basis (post-Patriot/IHC Merger) for the Patriot
Companies (which also assumes consummation of the Merger and the Related
Transactions, the Crow Assets Acquisition, the CHCI Merger and the WHG
Merger), net loss per Paired Share is $0.30 for the year ended December 31,
1996 and net income per Paired Share is $0.11 for the nine months ended
September 30, 1997, as compared to net income per Paired Share of $0.09 for
the year ended December 31, 1996 and net income per Paired Share of $0.32 per
Paired Share for the nine months ended September 30, 1997 on a pro forma
combined basis (pre-Patriot/IHC Merger) for the Patriot Companies. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
Pro Forma Indebtedness. Upon consummation of the Patriot/IHC Merger, the pro
forma combined indebtedness of the Patriot Companies will increase by $1.2
billion from $1.6 billion (assuming consummation of the Merger and the Related
Transactions, the Crow Assets Acquisition, the CHCI Merger and the WHG Merger)
to approximately $2.8 billion. The pro forma ratio of combined debt to total
market capitalization of the Patriot Companies will be approximately 37.2%,
based on a $31.50 per Paired Share closing price of the Paired Shares on
December 3, 1997, as compared to a pro forma ratio of combined debt to total
market capitalization of the Patriot Companies of 28.4% on a pre-Patriot/IHC
Merger basis. The Unaudited Pro Forma Condensed Combined Financial Statements
set forth in this Supplement show the effects of this additional indebtedness
on Patriot REIT and Patriot Operating Company. See "Unaudited Pro Forma
Condensed Combined Financial Statements."
The interest rate on the Revolving Credit Facility bears interest at a
variable rate based, in part, on the Patriot Companies' leverage ratio. The
Patriot Companies anticipate that the Term Loan will bear interest on similar
terms. See "--Revolving Credit Facility and Term Loan." Consequently, the
incurrence of indebtedness in connection with the Patriot/IHC Merger, and the
resulting increase in the Patriot Companies' leverage ratio, may result in
increased interest expense under the Revolving Credit Facility and a higher
interest rate on the Term Loan, if consummated. The Patriot Companies may
issue additional equity securities in an attempt to lower their debt to market
capitalization ratio. The increased debt obligations of the Patriot Companies
following the Patriot/IHC Merger may adversely affect the market price of the
Paired Shares and may inhibit the ability of the Patriot Companies to raise
capital in both the public and private market.
Financing. In order to satisfy certain cash requirements resulting from the
Patriot/IHC Merger and to finance in part the Patriot/IHC Merger, the Patriot
Companies are exploring alternative means by which to obtain additional
financing prior to the effective time of the Patriot/IHC Merger. Such
financing may consist of public or private equity or debt, or a combination
thereof. While the Patriot Companies have received "highly confident" letters
from both PaineWebber Real Estate Securities, Inc. and The Chase Manhattan
Bank with respect to financing the cash portion of the Patriot/IHC Merger
consideration, no assurances can be given that the Patriot Companies will
successfully obtain the financing necessary to consummate the Patriot/IHC
Merger, or if obtained, as to the terms and conditions of any such financing.
Conversion to Wyndham Brand; Other Consents and Approvals. IHC's hotel
portfolio consists of owned, leased and managed hotels and hotels subject to
service agreements. IHC operates its hotels under a variety of brand names
subject to franchise agreements (the "Franchise Agreements") with the owners
of the brands (the "Brand Owners"). Following the Patriot/IHC Merger, the
Patriot Companies intend to convert a number of the hotels in IHC's owned
portfolio to the Wyndham brand. The ability of the Patriot Companies to
convert such hotels to the Wyndham brand will be subject to the conditions of
the Franchise Agreements, and the termination of such agreements prior to the
expiration of their respective terms will generally require the consent of the
Brand
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Owner and/or the payment of certain termination penalties. In addition, such
consent, if obtained, may require the Patriot Companies to pay additional
consideration to the Brand Owner. Although the Patriot Companies believe that
the Marriott Letter of Intent will facilitate the conversion of a number of
IHC owned hotels to the Wyndham brand, the Marriott Letter of Intent is non-
binding and therefore no assurances can be given that the Marriott franchise
agreements will be terminated. Failure of the Patriot Companies to
successfully convert IHC hotels to the Wyndham brand, or to convert such
hotels in a cost effective manner, could result in the failure of the Patriot
Companies to recognize certain of the anticipated strategic and economic
benefits of the Patriot/IHC Merger, including without limitation, the
achievement of greater brand awareness with respect to the Wyndham brand and
the economic benefits to the holders of Paired Shares resulting from the
ownership of the Wyndham brand.
The terms of agreements governing the relationships between IHC and certain
third parties require the consent of such third parties in the event of a
transaction involving a change of control of IHC or similar event affecting
IHC. If such consents are not obtained prior to or in connection with the
consummation of the Patriot/IHC Merger, the Patriot Companies may be required
to pay termination or other fees to such third parties as a result of
consummation of the Patriot/IHC Merger. No assurances can be given that the
Patriot Companies will successfully obtain required third party consents in
connection with the Patriot/IHC Merger or that the Patriot Companies will not
incur significant expenses whether or not such consents are obtained.
Failure to Manage Rapid Growth. The Patriot Companies currently are
experiencing a period of rapid growth. Since its initial public offering in
October 1995, the Patriot Companies have consummated acquisitions of
California Jockey Club and Bay Meadows Operating Company, Carefree Resorts,
Grand Heritage Hotels and Gencom American Hospitality, and have entered into
definitive agreements relating to the acquisition of Wyndham, the Crow Hotel
Properties, CHC International, Inc., WHG Resorts & Casinos Inc. and IHC. Based
upon the respective portfolios of the Patriot Companies and IHC at December 1,
1997, the Patriot Companies' aggregate rooms portfolio after giving effect to
the transactions set forth above will be approximately 103,000 rooms,
representing an increase in the Patriot Companies' rooms portfolio of over
98,800 since Patriot REIT's Initial Offering. Failure of the Patriot Companies
to expand their operations to satisfy the needs of a rapidly growing asset
base in a functionally and economically efficient manner, or the failure of
the Patriot Companies to successfully integrate their operations with those
being acquired could have a materially adverse effect on the results of
operations and financial condition of the Patriot Companies, and could result
in the Patriot Companies' failure to recognize the anticipated benefits of
these acquisitions.
WYNDHAM CONSENT TO PATRIOT/IHC MERGER AND RELATED AMENDMENT TO WYNDHAM MERGER
AGREEMENT
Consideration by Wyndham Board
The Merger Agreement generally provides that any significant transaction
involving Patriot REIT, Patriot Operating Company or Wyndham be approved by
the Interim Transactions Committee. See "The Merger Agreement--Certain
Covenants--Interim Transactions Committee" in the Joint Proxy
Statement/Prospectus. The Interim Transactions Committee consists of two
Patriot REIT representatives, Paul A. Nussbaum and William W. Evans III, and
two Wyndham representatives, James D. Carreker and Philip J. Ward. The Wyndham
representatives on the Interim Transactions Committee determined that, in view
of the significance of the Patriot/IHC Merger, it would be appropriate to seek
approval of the Wyndham Board before approving the Patriot/IHC Merger as
members of the Interim Transactions Committee.
In order to assist Wyndham in its evaluation of the proposed Patriot/IHC
Merger, commencing in early November 1997, Wyndham representatives actively
participated in the Patriot Companies' due diligence investigation of IHC. At
the regularly scheduled meeting of the Wyndham Board on November 20, 1997,
members of Wyndham management reported to the Wyndham Board concerning the
results of the due diligence efforts, the proposed terms and preliminary
financial analysis of the proposed Patriot/IHC Merger and the strategic
advantages and disadvantages of an acquisition of IHC by Patriot REIT. The
Wyndham Board also reviewed with Wyndham's legal advisors the potential timing
and other effects of the Patriot/IHC Merger on the
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Merger. Management representatives also reported that, in connection with a
proposal to settle the Wyndham Stockholders' Litigation (as hereinafter
defined), Smith Barney had been requested to provide an updated opinion
regarding the fairness of the Merger Consideration, from a financial point of
view, to the holders of Wyndham Common Stock.
The Wyndham Board met again on November 23, 1997 and received an update from
Wyndham management representatives on the status of negotiations between the
Patriot Companies and IHC. After additional discussions concerning the
benefits and other effects of the proposed acquisition of IHC by Patriot REIT
and the potential timing implications of the Patriot/IHC Merger on the Merger,
the Wyndham Board decided to request that the Patriot Companies agree to
changes to the Merger Agreement, including an extension of the date after
which either party has the right to terminate the Merger Agreement, payment in
respect of dividends on Paired Shares missed by Wyndham stockholders as a
result of delay in the Merger, the waiver by Patriot REIT of certain closing
conditions to the Merger and revisions in the determination of the Merger
Consideration to protect against the possibility of potential downward
movements in the market price of Paired Shares. The Wyndham Board was informed
that, because of a potential conflict of interest, Smith Barney would not be
able to include the Patriot/IHC Merger in its updated opinion, and,
accordingly, Smith Barney was not provided with any information relating to
the Patriot/IHC Merger and Smith Barney did not evaluate any aspect of the
Patriot/IHC Merger for purposes of its updated opinion. See "--Opinions of
Financial Advisors--Opinion of Smith Barney." After noting that Merrill Lynch
was acting as financial advisor to IHC in its negotiations with Patriot REIT,
the Wyndham Board decided to attempt to retain PaineWebber to render an
opinion regarding the fairness of the proposed Patriot/IHC Merger. The Wyndham
Board recognized that PaineWebber would be requested to deliver an opinion to
the Patriot REIT Board and the Patriot Operating Company Board in connection
with their consideration of the Patriot/IHC Merger (the "PaineWebber IHC
Opinion") to the effect that, as of the date of such opinion, based on
PaineWebber's review and subject to certain assumptions and limitations
described therein, the merger consideration in the Patriot/IHC Merger (the
"IHC Merger Consideration") was fair, from a financial point of view, to the
holders of Paired Shares. See "--Opinions of Financial Advisors--Opinion of
PaineWebber Concerning Patriot/IHC Merger." The Wyndham Board was aware of the
potential conflict of interest resulting from the fact that PaineWebber was
acting as Patriot REIT's financial advisor in connection with the Patriot/IHC
Merger, but the Wyndham Board concluded that because of PaineWebber's
extensive work in evaluating IHC, PaineWebber was in a position to present an
informative financial analysis of the Patriot/IHC Merger to the Wyndham Board
and to provide the requested fairness opinion.
On November 23 and 24, 1997, Wyndham management representatives participated
in meetings between representatives of the Patriot Companies and
representatives of Marriott concerning the potential for converting certain
IHC hotels from the Marriott brand to the Wyndham brand following the
Patriot/IHC Merger. Also on November 24, the Wyndham Board met to receive a
report on the Marriott discussions and the status of the ongoing negotiations
between Patriot REIT and IHC. The Wyndham Board also received a report on
Patriot REIT's initial response to Wyndham's request for modifications to the
Merger Agreement.
Wyndham engaged PaineWebber on November 25, 1997 to provide a fairness
opinion regarding the Patriot/IHC Merger. Also on November 25, the Wyndham
Board met again and received PaineWebber's financial analysis of the
Patriot/IHC Merger and its oral opinion confirming that the PaineWebber IHC
Opinion includes as holders of Paired Shares those holders who will become
such as a result of the Merger and that the Wyndham Board could rely on the
PaineWebber IHC Opinion to such extent as if it were addressed to the Wyndham
Board. See "--Opinions of Financial Advisors--Opinion of PaineWebber
Concerning Patriot/IHC Merger." During the course of its presentation, the
PaineWebber representatives reminded the members of the Wyndham Board that
PaineWebber regularly provides financial advisory and investment banking
services to Patriot REIT, that PaineWebber has lending and other financial
relationships with Patriot REIT and that PaineWebber is acting as Patriot
REIT's financial advisor in both the Merger and the Patriot/IHC Merger. The
Wyndham Board also heard presentations from Patriot REIT's Chairman of the
Board and its legal advisors concerning the Patriot/IHC Merger and its
potential effects on the timing of the Merger, as well as a report on
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Patriot REIT's position concerning the changes to the Merger Agreement that
had been requested by Wyndham as a result of the Patriot/IHC Merger. Following
the meeting, negotiations concerning the requested modifications continued
between management representatives of Wyndham and Patriot REIT and their
respective legal advisors. In the course of those negotiations, it was
determined that the Crow Family Entities should be requested to waive the
condition to consummation of the Crow Assets Acquisition relating to
consummation of the Merger, that the Crow Assets Acquisition should be
consummated prior to December 31, 1997 and that the Wyndham management
agreements covering the Crow Hotel Properties should remain in effect
following the Crow Assets Acquisition and should be extended and amended in
certain respects if the Merger is not consummated on or before March 31, 1998.
Representatives of the Crow Family Entities were consulted concerning the
waiver of the Merger condition in the Crow Assets Acquisition, and they
requested that additional consideration be paid for the Crow Hotel Properties
if the Merger is not consummated on or before March 31, 1998. See "--Omnibus
Purchase and Sale Agreement."
On November 26, 1997 the Wyndham Special Committee met with its legal
advisors to discuss the proposed Merger Agreement modifications and the
proposed changes to the terms of the Crow Assets Acquisition. The Wyndham
Special Committee determined that the amendments to be reflected in the Second
Amendment were acceptable and should be considered by the Wyndham Board. Later
in the evening of November 26, the Wyndham Board met and voted unanimously to
approve the Merger Agreement modifications to be reflected in the Second
Amendment and to authorize the Wyndham members of the Interim Transactions
Committee to vote to approve the Patriot/IHC Merger. The Interim Transactions
Committee thereafter unanimously approved the Patriot/IHC Merger.
In making its determination with respect to the Patriot/IHC Merger, the
Wyndham Board considered a number of factors, including (i) the fact that the
Patriot/IHC Merger is projected to be immediately accretive to the Patriot
Companies' funds from operations, (ii) the opportunity represented by the
Patriot/IHC Merger for the Patriot Companies to have a significant presence in
the third-party management services business and to acquire a large number of
hotels (many of which could ultimately be converted to the Wyndham brand) in a
single transaction and (iii) the opinion of PaineWebber confirming that the
PaineWebber IHC Opinion includes as holders of Paired Shares those holders who
will become such as a result of the Merger and that the Wyndham Board could
rely on the PaineWebber IHC Opinion to such extent as if it were addressed
directly to the Wyndham Board. All of the foregoing factors were deemed
favorable by the Wyndham Board. The most significant potentially negative
factor in the deliberations of the Wyndham Board was the delay in the Merger
that could be caused by the Patriot/IHC Merger. The Wyndham Board concluded
that this factor was addressed and offset at least in part by the
modifications to the Merger Agreement to be reflected in the Second Amendment.
Patriot/Wyndham Merger Agreement Amendment
In connection with the execution of the Patriot/IHC Merger Agreement,
Patriot REIT, Patriot Operating Company and Wyndham entered into the Second
Amendment. Set forth below is a summary of the material terms of the Second
Amendment. The discussion and the description of the material terms of the
Second Amendment in this Supplement are subject to and qualified in their
entirety by reference to the Second Amendment, a copy of which is attached to
this Supplement as Annex S-A and which is incorporated herein by reference,
and the April Merger Agreement, the First Amendment and the Ratification
Agreements, copies of which are attached as Annexes A, B and C to the Joint
Proxy Statement/Prospectus and which are incorporated herein and therein by
reference. See "The Merger and Subscription" and "The Merger Agreement" in the
Joint Proxy Statement/Prospectus.
Termination Date. The Second Amendment extended the date after which either
Patriot REIT or Wyndham may terminate the Merger Agreement from December 16,
1997 to March 31, 1998.
Merger Consideration. Patriot REIT, Patriot Operating Company and Wyndham
also agreed pursuant to the Second Amendment that if the Effective Time of the
Merger does not occur on or prior to December 31,
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1997, other than as a result of the failure, caused by Wyndham, of certain
closing conditions to be satisfied (a "Wyndham Delay"), and the Patriot
Average Closing Price is less than $27.50 but greater than or equal to $25.50,
the Exchange Ratio will be adjusted so that each share of Wyndham Common
Stock, other than shares as to which Cash Consideration is to be received,
will be converted into the right to receive the number of Paired Shares equal
to $37.73 divided by the Patriot Average Closing Price. If the Effective Time
of the Merger does not occur on or prior to December 31, 1997 other than as a
result of a Wyndham Delay, and the Patriot Average Closing Price is less than
$25.50, the Exchange Ratio will be adjusted so that each share of Wyndham
Common Stock, other than shares as to which Cash Consideration is to be
received, will be converted into the right to receive 1.480 Paired Shares,
provided, however, that in such circumstances Wyndham has the right, waivable
by it, to terminate the Merger Agreement.
The Second Amendment also provides that in addition to receiving Paired
Shares at the Exchange Ratio, and/or Cash Consideration in the case of shares
of Wyndham Common Stock as to which a Cash Election has been made, holders of
Wyndham Common Stock will be entitled to receive an additional cash payment
(the "Additional Cash Consideration") equal to the sum of (i) the Pro Forma
Dividend Amount (as defined below), if any, and (ii) if the Effective Time of
the Merger does not occur on or prior to January 5, 1998 other than as a
result of a Wyndham Delay, a per share amount equal to the product of the Full
Dilution Percentage (as hereinafter defined) and the Per Share Deferral Amount
(as defined below), if any. Under the terms of the Second Amendment, the term
"Pro Forma Dividend Amount" is defined as the amount equal to the aggregate
per share amount of all dividends declared on the Patriot REIT Common Stock
and the Patriot Operating Company Common Stock the record date for which is on
or after November 26, 1997 but prior to the Effective Time, multiplied by the
Exchange Ratio. Under the terms of the Second Amendment, the term "Per Share
Deferral Amount" is defined as follows: (X) so long as there is not in effect
an order, ruling or injunction in any action brought by or on behalf of one or
more stockholders of Wyndham or in the right of Wyndham (a "Wyndham
Stockholder Injunction") that causes the condition under the Merger Agreement
that there exist no order, ruling or injunction of a court which prohibits
consummation of the Merger (the "Injunction Condition") to not be satisfied,
(a) if the Effective Time is on or before January 31, 1998, the Per Share
Deferral Amount shall be an amount equal to $10 million divided by the total
number of shares of Wyndham Common Stock outstanding immediately prior to the
Effective Time (the "Wyndham Outstanding Shares"), (b) if the Effective Time
is after January 31, 1998 but on or before February 28, 1998, the Per Share
Deferral Amount shall be an amount equal to $21 million divided by the Wyndham
Outstanding Shares, and (c) if the Effective Time is after February 28, 1998,
the Per Share Deferral Amount shall be an amount equal to $32 million divided
by the Wyndham Outstanding Shares; and (Y) in the event that there is in
effect a Wyndham Stockholder Injunction that causes the Injunction Condition
to not be satisfied, (A) if the Effective Time is on or before January 31,
1998, the Per Share Deferral Amount shall be equal to zero, (B) if the
Effective Time is after January 31, 1998 but on or before February 28, 1998,
the Per Share Deferral Amount shall be an amount equal to $15 million divided
by the Wyndham Outstanding Shares, and (C) if the Effective Time is after
February 28, 1998, the Per Share Deferral Amount shall be an amount equal to
$30 million divided by the Wyndham Outstanding Shares. Under the terms of the
Second Amendment, the term "Full Dilution Percentage" is defined as (A) the
total number of shares of Wyndham Common Stock outstanding immediately prior
to the Effective Time, divided by (B) the sum of the total number of shares of
Wyndham Common Stock in clause (A) above and the total number of shares of
Wyndham Common Stock as to which Assumed Options are or may become exercisable
(whether or not currently exercisable). The Full Dilution Percentage will
cause the portion of the Additional Cash Consideration attributable to the Per
Share Deferral Amount to be calculated on a fully-diluted basis assuming
exercise of all of Wyndham's stock options.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
under the Merger Agreement to make a Cash Election to receive Cash
Consideration, and CF Securities has an equivalent right under the Stock
Purchase Agreement; provided, however, that the maximum aggregate amount of
cash to be paid to Wyndham stockholders and CF Securities pursuant to such
Cash Election rights will be a total of $100 million. Pursuant to the Second
Amendment, Patriot REIT, Patriot Operating Company and Wyndham also agreed to
change the amount per share payable upon a Cash Election to a fixed amount so
that stockholders of Wyndham who make a Cash Election will be entitled to
receive Cash Consideration in an amount per share equal to $42.80. Prior to
the
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execution of the Second Amendment, the Merger Agreement provided that
stockholders of Wyndham who made a Cash Election would have been entitled to
receive Cash Consideration in an amount per share equal to the Cash
Consideration Fair Market Value. In the event that holders of Wyndham Common
Stock and CF Securities elect to receive more than $100 million in cash, such
cash will be allocated on a pro rata basis among such stockholders and CF
Securities based upon the respective number of shares of Wyndham Common Stock
as to which they have made a Cash Election, and the Wyndham stockholders
(other than CF Securities) will receive Paired Shares at the Exchange Ratio
for their shares of Wyndham Common Stock which are not converted into Cash
Consideration. CF Securities has delivered to Patriot REIT a Cash Election
pursuant to which CF Securities has elected to receive Cash Consideration with
respect to all 9,447,745 shares of Wyndham Common Stock beneficially owned by
CF Securities. Because CF Securities has made a Cash Election with respect to
all of the shares of Wyndham Common Stock beneficially owned by it, the
maximum amount of cash available to be paid to other holders of Wyndham Common
Stock in the Merger is expected to be approximately $56.3 million. If no other
stockholders of Wyndham make a Cash Election, CF Securities will receive the
entire $100 million of cash available for Cash Elections. Under such
circumstances, CF Securities may receive a combination of Paired Shares and
Series A Preferred Stock pursuant to the terms of the Stock Purchase Agreement
for its shares of Wyndham Common Stock which are not converted into Cash
Consideration, subject to certain REIT qualification limitations that could,
under certain limited circumstances, result in the payment of cash in lieu of
shares of Series A Preferred Stock.
Assumed Options. Stock options (the "Assumed Options") to purchase shares of
Wyndham Common Stock will be assumed by the Patriot Companies pursuant to the
Merger Agreement as described in the Joint Proxy Statement/Prospectus. See
"The Merger and Subscription--Interests of Certain Officers, Directors and
Stockholders of Wyndham--Wyndham Stock Options" and "The Merger Agreement--
Wyndham Options." Such Assumed Options will generally provide for the holders
to receive Paired Shares instead of Wyndham Common Stock upon exercise, except
that, to the extent the Second Amendment provides for an amount equal to the
product of the Full Dilution Percentage and the Per Share Deferral Amount, if
any, to be paid to Wyndham stockholders, optionees will also receive such
additional consideration upon exercise of the Assumed Options. Pursuant to the
Second Amendment, the Patriot Companies and Wyndham will consider in good
faith whether any of the Assumed Options will provide that the Patriot
Companies will have the discretion to settle any option exercise with a cash
amount equal to the difference between (i) the option exercise price and (ii)
the fair market value of the Paired Shares, plus the cash, if any, payable to
the holder upon exercise thereof, less any applicable tax withholding.
Merger Expenses. The terms of the Second Amendment provide that out-of-pocket
fees and expenses actually incurred by Wyndham in connection with the Merger
and Related Transactions payable by Patriot REIT to Wyndham if the Merger
Agreement is terminated under certain circumstances by Patriot REIT or Wyndham
shall be increased under the Merger Agreement to an amount not exceeding $9
million. See "The Merger Agreement--Termination" in the Joint Proxy
Statement/Prospectus.
Wyndham/Crow Hotel Management Agreements. The Second Amendment also provides
that if any of the transactions contemplated by the Crow Assets Acquisition
are consummated prior to the Effective Time, then Wyndham's management
agreements relating to the hotels subject to such transactions shall remain in
full force and effect in accordance with their terms, except that in the event
that the Effective Time does not occur on or prior to March 31, 1998, then (i)
the term of each such management agreement shall be amended so that such term
expires on the later to occur of the current term or ten years after the date
of such amendment and so that Wyndham shall have the option to renew such
management agreement for two additional five-year terms, (ii) such management
agreement shall be amended to include performance-based incentive fees and
reasonable performance standards for the exercise of the renewal option, and
(iii) such management agreement shall, to the extent necessary, be amended to
provide for a base fee of 3% of gross revenues and a trade name fee of 1% of
rooms revenue.
Interim Transactions Committee. Pursuant to the Second Amendment, the
approval of the Interim Transactions Committee (whose approval is required for
Patriot REIT or Wyndham to engage in certain transactions prior to the
Effective Time) will also be required for either of the Patriot Companies or
any of their
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subsidiaries to execute a definitive agreement prior to the Effective Time
providing for or having the effect of a Change of Control (as defined below).
For this purpose a "Change of Control" shall include transactions (i) in which
the terms thereof provide for a majority of the directors of Patriot REIT or
Patriot Operating Company to consist of persons who were not directors of
Patriot REIT or Patriot Operating Company, respectively, prior to such
transaction or otherwise contemplate such a change or (ii) as a result of
which equity securities of the Patriot Companies (and/or convertible
securities of their operating partnerships) would be issued that would entitle
the holders to receive (or if converted would entitle the holders to receive)
a majority of the dividends payable on the equity securities of the Patriot
Companies taken as a whole or a majority of the assets of the Patriot
Companies taken as a whole or a majority of the assets of the Patriot
Companies taken as a whole upon a liquidation.
Recommendation of the Boards of Directors. Patriot REIT, Patriot Operating
Company and Wyndham agreed pursuant to the Second Amendment that it shall
constitute a material breach of the Merger Agreement by Patriot REIT and
Patriot Operating Company if Patriot REIT, Patriot Operating Company or either
of their respective Boards of Directors shall (i) withdraw, modify or amend in
any respect adverse to Wyndham its approval or recommendation of the Merger
Agreement or any of the transactions contemplated by the Merger Agreement,
(ii) fail to maintain such recommendation in the Joint Proxy
Statement/Prospectus or any amendment thereof or supplement thereto, (iii)
recommend to its stockholders any Patriot Alternative Proposal (as hereinafter
defined), or (iv) resolve to do any of the foregoing. For purposes of the
Second Amendment, the term "Patriot Alternative Proposal" generally means any
proposed or actual (a) merger, consolidation or similar transaction involving
Patriot REIT or Patriot Operating Company, (b) purchase, lease or other
acquisition, or sale, lease or other disposition, directly or indirectly, by
merger, consolidation, share exchange or otherwise, of any assets by or of
Patriot REIT or Patriot Operating Company or their respective subsidiaries,
(c) issue, sale or other disposition of securities, (d) transaction in which
any person shall acquire beneficial ownership of outstanding shares of voting
stock of Patriot REIT or Patriot Operating Company, (e) recapitalization,
restructuring, liquidation, dissolution or other similar type of transaction
with respect to Patriot REIT, Patriot Operating Company or any of their
respective subsidiaries, (f) transaction involving a Change of Control of
Patriot REIT or Patriot Operating Company based on a change in a majority of
the directors of Patriot REIT or Patriot Operating Company, (g) or any similar
transaction to any of the foregoing, if and only if the foregoing (A) would
preclude the consummation of the Merger, (B) is conditioned upon stockholders
of Patriot REIT or Patriot Operating Company not approving the Merger
Proposal, the Patriot Charter Amendment Proposals, or the Pairing Agreement
Amendment Proposal, or (C) would involve the acquisition of, or the right to
use, any competitive brand by Patriot REIT, Patriot Operating Company or any
of their respective subsidiaries if such transaction would reasonably be
viewed in the lodging industry as an alternative to the Merger.
Absence of Changes. The Second Amendment generally provides that it shall be
a condition to the obligations of Patriot REIT to consummate the Merger that
from and after the date of the April Merger Agreement through December 16,
1997 there shall have not occurred any changes concerning Wyndham or any of
its subsidiaries that have had or could be reasonably likely to have a
material adverse effect on Wyndham and its subsidiaries taken as a whole (a
"Wyndham Adverse Effect") and that Wyndham's representations and warranties
have to continue to be true and correct (subject to a similar materiality
exception and certain other exceptions as described in the Joint Proxy
Statement/Prospectus) through December 16, 1997. After December 16, 1997, it
is no longer a condition to Patriot's obligation to consummate the Merger that
there shall have not occurred any changes concerning Wyndham or any of its
subsidiaries that have had or could be reasonably likely to have a Wyndham
Adverse Effect or that such representations and warranties continue to be true
as of any date thereafter. See "The Merger Agreement--Conditions to the
Merger" in the Joint Proxy Statement/Prospectus.
Stock Purchase Agreement. Pursuant to the Stock Purchase Agreement, Patriot
REIT has agreed to purchase from CF Securities up to 9,447,745 shares of
Wyndham Common Stock for a combination of Paired Shares, shares of Series A
Preferred Stock and cash based on the Exchange Ratio and the Cash
Consideration established pursuant to the Merger Agreement. See "The Stock
Purchase Agreement" in the Joint Proxy
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Statement/Prospectus. The parties to the Stock Purchase Agreement have
confirmed that the changes in the Merger Consideration resulting from the
Second Amendment will have a corresponding effect under the Stock Purchase
Agreement.
Crow Assets Acquisition. Under the terms of the Second Amendment, it is a
condition to the obligation of Patriot REIT to consummate the Merger that the
closing of the transactions contemplated by the Crow Assets Acquisition shall
have become effective as to at least those Crow Hotel Properties sufficient to
satisfy the condition under the Omnibus Purchase and Sale Agreement that the
stipulated net operating income attributable to the Final Properties shall be
no less than 65% of the stipulated net operating income attributable to all of
the Crow Hotel Properties (the "NOI Condition"). However, the closing of these
acquisitions of the Crow Hotel Properties is not a condition to Patriot REIT's
obligations if the Patriot REIT Partnership is in material breach of the
Omnibus Purchase and Sale Agreement. The closing of the Crow Assets
Acquisition is scheduled for December 16, 1997. In addition, as described
below, the parties to the Omnibus Purchase and Sale Agreement have agreed to
waive any conditions to the closing that the Merger be consummated
concurrently with the consummation of the Crow Assets Acquisition. See "The
Omnibus Purchase and Sale Agreement--Conditions to Closing" in the Joint Proxy
Statement/Prospectus.
Waiver of HPT Consent Condition. Pursuant to the Second Amendment, Patriot
REIT agreed to waive the condition to its obligation to consummate the Merger
that Wyndham obtain all amendments, consents, authorizations, modifications
and approvals as may be required under any lease or related management
contract of a Wyndham Property or a hotel property leased or managed by a
Wyndham Affiliate owned by Hospitality Properties Trust or an Affiliate
thereof (collectively, the "HPT Consents"). See "The Merger Agreement--
Conditions to the Merger" in the Joint Proxy Statement/Prospectus.
OMNIBUS PURCHASE AND SALE AGREEMENT AMENDMENT
In connection with the execution of the Patriot/IHC Merger Agreement, the
Patriot REIT Partnership and the Crow Family Entities have agreed in principle
to amend the Omnibus Purchase and Sale Agreement. The parties agreed that the
closing of the Crow Assets Acquisition would be scheduled for December 16,
1997 (the "Crow Assets Acquisition Closing") as to a number of Final Hotels
sufficient to satisfy the NOI Condition and that they would waive any
conditions to the closing that the Merger shall be consummated concurrently
with consummation of the Crow Assets Acquisition. The parties also agreed that
in the event that the Merger does not close on or before March 31, 1998, other
than as a result of a delay caused by (i) the failure of Wyndham to have
obtained all required consents, authorizations and approvals of governmental
bodies or third parties (other than the HPT Consents) or (ii) the failure of
Wyndham to have (A) performed its obligations under the Merger Agreement, (B)
completed the restructuring of certain assets and/or Wyndham Subsidiaries, and
obtained all required consents (or waivers thereof) in connection therewith
(other than the HPT Consents), (C) acknowledged the execution and delivery by
Patriot REIT and Patriot Operating Company of the Cooperation Agreement, or
(D) obtained all required amendments, consents, authorizations, modifications
and approvals relating to the Wyndham Anatole Hotel management agreement, the
Patriot REIT Partnership will be required to pay additional consideration (the
"Additional Consideration") for the purchased hotels to the Crow Family
Entities such that the total purchase price equals the Crow Hotel Properties'
budgeted NOI (with appropriate deductions for management fees, trade name fees
and F, F & E reserves) for 1998 capitalized at an 8% rate. The Additional
Consideration, if payable, will be payable 60% in Paired Shares (with the
value thereof equal to the average closing price of a Paired Share over the
ten trading days prior to March 31, 1998) (the "Non-Cash Additional
Consideration") and 40% in cash, provided that the Crow Family Entities
generally have the option of receiving the Non-Cash Additional Consideration
in the form of OP Units of the Patriot Partnerships. The Patriot REIT
Partnership and the Crow Family Entities also agreed that the Crow Family
Entities would receive registration rights with respect to the Paired Shares
(or the Paired Shares into which OP Units may be redeemable) received as Non-
Cash Additional Consideration based on the terms and conditions of the
Registration Rights Agreement relating to the Paired Shares and shares of
Series A Preferred Stock to be received by the Registration Rights Holders
pursuant to the Merger and the Stock Purchase. See "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Wyndham--
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Registration Rights Agreement" and "The Omnibus Purchase and Sale Agreement"
in the Joint Proxy Statement/Prospectus.
Further, it is expected that the purchase of the Wyndham Palm Springs Hotel
(the "Palm Springs Hotel") will not occur contemporaneously with the Crow
Assets Acquisition Closing. With respect to the Palm Springs Hotel, consents
to the sale of such hotel must be obtained from a lender and certain other
third parties. Accordingly, no assurances can be given that such purchase will
be consummated.
REVOLVING CREDIT FACILITY AND TERM LOAN
Subsequent to the mailing of the Joint Proxy Statement/Prospectus, Patriot
REIT, PaineWebber Real Estate and Chase entered into a new commitment letter
providing for (i) an increase of $200 million in availability under the
Revolving Credit Facility (the "Credit Facility Amendment") for aggregate
availability of $900 million on substantially the same terms as the Revolving
Credit Facility, and (ii) an unsecured term loan in the aggregate principal
amount of $350 million (the "Term Loan"). The Term Loan is expected to have an
interest rate per annum ranging from LIBOR plus 1.00% to 2.00% (depending on
the Patriot Companies' leverage ratio or the investment grade rating received
from the rating agencies) or the customary alternate base rate announced from
time to time plus 0.0% to 0.5% (depending on the Patriot Companies' leverage
ratio). The Term Loan will be used primarily to refinance substantially all of
the existing indebtedness of Wyndham and to finance payments to be made in
connection with the Merger and the Related Transactions and the Crow Assets
Acquisition. In addition, it is expected that the Patriot Companies' existing
Revolving Credit Facility will be used to retire that portion of existing
indebtedness of Wyndham that is not refinanced through the Credit Facility
Amendment and the Term Loan.
WYNDHAM DEBT TENDER OFFER
On November 13, 1997, Wyndham commenced a tender offer for all of the
outstanding Wyndham Senior Subordinated Notes and consent solicitation of a
majority of the holders of the Wyndham Senior Subordinated Notes to eliminate
or modify certain covenants and other provisions contained in the Wyndham
Indenture. See "The Companies--Surviving Companies--Indebtedness--Wyndham
Senior Subordinated Notes" in the Joint Proxy Statement/Prospectus. The tender
offer originally was scheduled to expire at midnight on December 12, 1997.
However, as a result of the rescheduling of the Special Meetings, the
expiration date has been extended so that the tender offer will now expire at
midnight on January 2, 1998. With respect to the consent solicitation, the
date by which consents must be received in order for holders of Wyndham Senior
Subordinated Notes to receive the consent payment (the "Consent Date") had
originally been November 28, 1997. Following commencement of the tender offer,
Wyndham announced the extension of the Consent Date until December 11, 1997.
As of December 8, 1997, Wyndham had received consents and tenders from holders
representing more than 96% of the outstanding principal amount of Wyndham
Senior Subordinated Notes.
The tender offer is conditioned on, among other things, the consummation of
the Merger and the receipt of a number of consents sufficient to amend the
Wyndham Indenture. The consents would become effective upon consummation of
the tender offer. In addition, Patriot REIT's obligation to consummate the
Merger is conditioned upon the tender offer being consummated on terms
reasonably satisfactory to Patriot REIT.
WYNDHAM LITIGATION SETTLEMENT
Subsequent to the mailing of the Joint Proxy Statement/Prospectus, the
plaintiffs in the action entitled Kwalbrun v. James D. Carreker, et al., Del.
Ch., C.A. No. 15657-NC (the "Wyndham Stockholders' Litigation") served Patriot
REIT with a complaint naming Patriot REIT as a Defendant in the Wyndham
Stockholders' Litigation. In addition, subsequent to the mailing of the Joint
Proxy Statement/Prospectus, the Defendants entered into arms' length
negotiations that resulted in an agreement in principle to settle the Wyndham
Stockholders' Litigation dated as of November 21, 1997 (the "Memorandum of
Understanding"). The Memorandum of
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Understanding sets forth the principal bases for the settlement which
included: (i) the agreement by Wyndham to provide an updated fairness opinion
to the Wyndham Board dated later than November 28, 1997, which would be
disclosed in this Supplement and (ii) certain other disclosures contained in
this Supplement, including (a) additional disclosures relating to the
discounted cash flow analyses performed by Merrill Lynch and (b) financial
statements for both Wyndham and Patriot REIT as of September 30, 1997.
Following the public announcement of the Patriot/IHC Merger, the parties to
the Wyndham Stockholders' Litigation entered into further arms' length
negotiations that resulted in an amended agreement in principle which includes
the following additional terms: (i) the limitation on Expenses payable to
Wyndham pursuant to Section 10.3 of the Merger Agreement was increased from $7
million to $9 million and (ii) it was agreed that, pursuant to the Second
Amendment, the Per Share Deferral Amount would be $21 million in February 1998
and would be $32 million in March 1998. The parties to the Wyndham
Stockholders' Litigation contemplate entering into an amended Memorandum of
Understanding (the "Amended Memorandum of Understanding") that will be subject
to the approval of the Boards of Directors of both Wyndham and Patriot REIT.
Further, the Amended Memorandum of Understanding and the proposed settlement
will be contingent upon execution of an appropriate and satisfactory
Stipulation of Settlement (the "Stipulation") and related documents, and the
approval of the Delaware Court of Chancery. The disclosure described above is
being made pursuant to the Memorandum of Understanding and the amended
agreement in principle. It is anticipated that as soon as practicable
following the Special Meetings, the parties to the Memorandum of Understanding
will enter into the formal Stipulation to be presented to the Delaware Court
of Chancery for approval. Thereafter, stockholders of Wyndham will receive a
formal Notice of Settlement informing them of the date and time of a
settlement hearing, their right to object to the proposed settlement and other
material information.
OPINIONS OF FINANCIAL ADVISORS
Opinion of Smith Barney
The Joint Proxy Statement/Prospectus describes the written opinion dated
April 14, 1997 of Smith Barney (the "Smith Barney Opinion"), financial advisor
to Wyndham, to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Merger Consideration was
fair, from a financial point of view, to the holders of Wyndham Common Stock.
See "The Merger and Subscription--Opinions of Wyndham's Financial Advisors--
Smith Barney" and Annex I in the Joint Proxy Statement/Prospectus. The
material financial analyses performed by Smith Barney in connection with the
Smith Barney Opinion appear in the Joint Proxy Statement/Prospectus at pages
111 through 116. Smith Barney has confirmed the Smith Barney Opinion by
delivering a written opinion dated the date of this Supplement (the
"Confirming Smith Barney Opinion"). In connection with the Confirming Smith
Barney Opinion, Smith Barney updated certain of the analyses performed in
connection with the Smith Barney Opinion and reviewed the assumptions on which
such analyses were based and the factors considered in connection therewith.
In connection with the Confirming Smith Barney Opinion, the Wyndham Board was
informed that, because of a potential conflict of interest, Smith Barney would
not be able to include the Patriot/IHC Merger in the Confirming Smith Barney
Opinion and, accordingly, Smith Barney was not provided with any information
relating to the Patriot/IHC Merger and Smith Barney did not evaluate any
aspect of the Patriot/IHC Merger for purposes of the Confirming Smith Barney
Opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED THE DATE OF THIS
SUPPLEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX S-B AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF WYNDHAM COMMON STOCK ARE URGED TO
READ THIS OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF SMITH BARNEY IS
DIRECTED TO THE WYNDHAM BOARD AND RELATES ONLY TO THE FAIRNESS OF THE MERGER
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT
THE WYNDHAM SPECIAL MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET
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FORTH IN THIS SUPPLEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
Merrill Lynch Discounted Cash Flow Analysis
As described in the Joint Proxy Statement/Prospectus, on April 13, 1997
Merrill Lynch delivered an oral opinion, which opinion was confirmed in a
written opinion dated April 14, 1997 (the "Merrill Lynch Opinion"), to the
Wyndham Special Committee to the effect that, as of such date, and based upon
the assumptions made, matters considered and limits of review set forth in the
Merrill Lynch Opinion, the Merger Consideration to be received by the holders
of Wyndham Common Stock (other than CF Securities) in the Merger was fair to
such stockholders from a financial point of view. In addition, the Joint Proxy
Statement/Prospectus contains a summary of certain financial and comparative
analyses performed by Merrill Lynch in arriving at the Merrill Lynch Opinion,
including, without limitation, a discounted cash flow analysis of Wyndham. See
"The Merger and Subscription--Opinions of Wyndham's Financial Advisors--
Merrill Lynch" in the Joint Proxy Statement/Prospectus. Set forth below is a
summary of the discounted cash flow analysis ("DCF") of Wyndham performed by
Merrill Lynch in arriving at the Merrill Lynch Opinion, including the
estimated valuation of the Wyndham Common Stock derived from such analysis.
Merrill Lynch performed a DCF analysis of Wyndham using Wyndham's management
projections and assumptions for 1997 through 2001 (the "Growth Case") and
projections for the same period based upon more conservative growth
assumptions provided by Wyndham's management (the "Sensitivity Case"). The
Sensitivity Case assumed hotel acquisitions that were $40 million lower than
the Growth Case for fiscal years 1997 through 1999, and $25 million lower than
the Growth Case for fiscal year 2000 and investments in new management
contracts that were $5.8 million lower than the Growth Case for fiscal years
1997 through 1999 and $3.3 million lower thereafter for fiscal years 2000 and
2001. The DCF for Wyndham was estimated using discount rates ranging from
11.0% to 13.0% based upon a weighted average cost of capital analysis for
Wyndham, La Quinta Inns Inc., Promus Hotel Corporation, Doubletree Hospitality
Corporation, Bristol Hotel Company, Red Roofs Inns and Capstar Hotels Inc.,
and was comprised of the sum of the present values of (i) the projected free
cash flows for the fiscal years 1997 to 2001, (ii) the fiscal year 2001
terminal value based upon a range of 2001 earnings before interest, taxes,
depreciation and amortization terminal multiples of 9.5x to 10.5x minus (iii)
the net debt as of December 1996. Utilizing this methodology Merrill Lynch
derived an estimated valuation of the Wyndham Common Stock ranging from $25.31
to $32.18 for the Growth Case and $21.71 to $27.17 for the Sensitivity Case.
Merrill Lynch has provided financial advisory services to IHC in connection
with the Patriot/IHC Merger.
Opinion of PaineWebber Concerning Patriot/IHC Merger
On November 25, 1997, the Wyndham Board engaged PaineWebber to provide a
fairness opinion to the Wyndham Board in connection with any proposed
acquisition by the Patriot Companies involving IHC, including the Patriot/IHC
Merger. Under the Merger Agreement, in light of the fact that the holders of
Wyndham Common Stock will, upon consummation of the transactions contemplated
by the Merger Agreement, become holders of Paired Shares, and be subject as
such to the terms of the Patriot/IHC Merger insofar as the same may relate to
holders of Paired Shares, Wyndham, through its representatives on the Interim
Transactions Committee, had the right to consent to the Patriot/IHC Merger. In
connection with its consideration of such consent, and insofar as the holders
of Wyndham Common Stock may be subject as holders of Paired Shares to the
terms of the Patriot/IHC Merger, the Wyndham Board wished to obtain
PaineWebber's opinion.
In determining to retain PaineWebber, the Wyndham Board recognized that
PaineWebber would deliver the PaineWebber IHC Opinion to the Patriot REIT
Board and the Patriot Operating Company Board (which was delivered orally on
November 25, 1997 and subsequently confirmed in writing on December 2, 1997)
in connection with their consideration of the Patriot/IHC Merger, to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to certain assumptions and limitations described therein, the IHC
Merger Consideration was fair, from a financial point of view, to the holders
of Paired Shares. The Wyndham
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Board also recognized that the PaineWebber IHC Opinion would assume that the
Merger would be consummated in accordance with the terms of the Merger
Agreement prior to the effectiveness of the Patriot/IHC Merger. Further,
because PaineWebber was advising the Patriot Companies in the Patriot/IHC
Merger, the Wyndham Board recognized that PaineWebber was well positioned to
analyze the Patriot/IHC transaction. The Wyndham Board also based its decision
to retain PaineWebber upon PaineWebber's prominence as an investment banking
and financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, distributions of securities, private placements and valuations
for corporate purposes, especially with respect to REITs and other real estate
companies.
On November 25, 1997, PaineWebber delivered an oral opinion to the Wyndham
Board, subsequently confirmed by a written opinion to the Wyndham Board dated
December 2, 1997 (the "PaineWebber Wyndham Opinion"), confirming that the
PaineWebber IHC Opinion (which was appended to the PaineWebber Wyndham Opinion
and had been described to the Wyndham Board) includes as holders of Paired
Shares those holders who will become such as a result of the Merger and that
the Wyndham Board could rely on the PaineWebber IHC Opinion to such extent as
if it were addressed to the Wyndham Board.
The PaineWebber Wyndham Opinion notes that PaineWebber had previously
rendered an opinion as to the fairness, from a financial point of view, of the
Merger Consideration to the holders of Paired Shares. It also notes that the
Wyndham Board received the Smith Barney Opinion as to the fairness, from a
financial point of view, of the Merger Consideration to the holders of Wyndham
Common Stock, and that the Wyndham Special Committee received the Merrill
Lynch Opinion as to the fairness, from a financial point of view, of the
Merger Consideration to the holders of Wyndham Common Stock (other than CF
Securities). The PaineWebber Wyndham Opinion states that PaineWebber assumed
that the Wyndham Board had independently determined that the terms of the
Merger are fair to the holders of Wyndham Common Stock and that PaineWebber
did not opine as to the fairness, from a financial point of view or otherwise,
of the Merger or the Merger Consideration to Wyndham or to the holders of
Wyndham Common Stock.
The PaineWebber Wyndham Opinion states that PaineWebber did not address the
business decision of the Wyndham Board to engage in the Merger or to consent
to the Patriot Companies' participation in the Patriot/IHC Merger, or the
relative merits of the Merger, the Patriot/IHC Merger and any other
transactions or business strategies discussed by the Wyndham Board as
alternatives to the Merger, and the PaineWebber Wyndham Opinion does not
constitute a recommendation to any holder of Wyndham Common Stock as to how
such holder should vote on the Merger. Furthermore, the PaineWebber Wyndham
Opinion states that PaineWebber did not address the business decision of the
Patriot REIT Board and the Patriot Operating Company Board to engage in the
Patriot/IHC Merger or the relative merits of the Patriot/IHC Merger and any
other transactions or business strategies discussed by the Patriot REIT Board
or the Patriot Operating Company Board as alternatives to the Patriot/IHC
Merger. The PaineWebber Wyndham Opinion does not constitute a recommendation
to any holder of Paired Shares, including those who will become such as a
result of the Merger, as to how any such holder should vote on the Patriot/IHC
Merger. No opinion was expressed by PaineWebber as to the price or trading
range at which Wyndham Common Stock or the Paired Shares may trade at any
time.
A COPY OF THE PAINEWEBBER WYNDHAM OPINION DATED DECEMBER 2, 1997, WHICH SETS
FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE
SCOPE OF REVIEW UNDERTAKEN BY PAINEWEBBER, IS ATTACHED HERETO AS ANNEX S-C AND
IS INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE PAINEWEBBER
WYNDHAM OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF SUCH OPINION. HOLDERS OF WYNDHAM COMMON STOCK ARE URGED TO
READ IN ITS ENTIRETY SUCH OPINION. THE PAINEWEBBER WYNDHAM OPINION IS
ADDRESSED TO THE WYNDHAM BOARD AND ADDRESSES ONLY THE FAIRNESS, FROM A
FINANCIAL POINT OF VIEW, OF THE IHC MERGER CONSIDERATION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF WYNDHAM COMMON STOCK AS TO HOW
SUCH HOLDER SHOULD VOTE AT THE WYNDHAM SPECIAL MEETING.
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As noted above, the PaineWebber Wyndham Opinion refers to, and annexes, the
PaineWebber IHC Opinion. Accordingly, the PaineWebber IHC Opinion is described
below. The description of the PaineWebber IHC Opinion set forth herein is
qualified in its entirety by reference to the full text of such opinion. A
copy of the PaineWebber IHC Opinion dated December 2, 1997, which sets forth
the assumptions made, matters considered and certain limitations on the scope
of the review undertaken by PaineWebber, is attached to the PaineWebber
Wyndham Opinion attached hereto as Annex S-C and is incorporated herein by
reference. Holders of Paired Shares and holders of Wyndham Common Stock are
urged to read in its entirety the PaineWebber IHC Opinion. The PaineWebber IHC
Opinion is addressed to the Patriot REIT Board and the Patriot Operating
Company Board and addresses only the fairness from a financial point of view
of the IHC Merger Consideration and does not constitute a recommendation to
any holder of Paired Shares as to how such holder should vote on any proposed
transaction.
In connection with rendering its opinion, PaineWebber, among other things:
(i) reviewed Old Patriot REIT's Annual Report, Forms 10-K and related
financial information for the fiscal years ended December 31, 1995 and
December 31, 1996 and the Patriot Companies' Form l0-Q and the related
unaudited financial information for the quarterly period ended September 30,
1997; (ii) reviewed the joint proxy statement and prospectus on Form S-4 dated
May 30, 1997 regarding the merger of Old Patriot REIT with and into Cal
Jockey; (iii) reviewed the joint proxy statement and prospectus on Form S-4
dated November 10, 1997 regarding the Merger and the transactions contemplated
thereby; (iv) reviewed Wyndham's Registration Statements related to the
concurrent initial public offering of Wyndham Common Stock and Wyndham Senior
Subordinated Notes in May 1996, Form 10-K and the related financial
information for the fiscal year ended December 31, 1996 and Form l0-Q and the
related unaudited financial information for the quarterly period ended
September 30, 1997; (v) reviewed IHC's Registration Statement dated June 19,
1996 related to the initial public offering of IHC Common Stock, Form 10-K and
the related financial information for the fiscal year ended December 31, 1996,
and Form l0-Q and the related unaudited financial information for the
quarterly period ended September 30, 1997; (vi) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets and prospects of the Patriot Companies and IHC, furnished to
PaineWebber by the Patriot Companies and IHC, respectively, with certain
information and forecasts supplied by the Patriot Companies having assumed
completion of the Merger and related transactions, the Crow Assets Acquisition
and certain other acquisitions; (vii) conducted discussions with members of
senior management of the Patriot Companies and IHC, concerning their
respective businesses and prospects; (viii) compared the results of operations
of IHC with those of certain companies which PaineWebber deemed to be
reasonably similar to IHC; (ix) compared the proposed financial terms of the
transactions contemplated by the Patriot/IHC Merger Agreement with the actual
or proposed financial terms of certain other mergers and acquisitions which
PaineWebber deemed to be relevant; (x) considered the pro forma effect of the
Patriot/IHC Merger on the Patriot Companies' funds from operations and certain
other financial measures, taking into account the Merger and related
transactions, the Crow Assets Acquisition and certain other acquisitions; (xi)
reviewed the financial terms of the Patriot/IHC Merger Agreement; (xii)
reviewed the historical market prices of Old Patriot REIT Common Stock, the
Paired Shares and IHC Common Stock and compared them to each other and to
certain indices PaineWebber deemed relevant; and (xiii) reviewed such other
financial studies and analyses and performed such other investigations and
took into account such other matters as PaineWebber deemed necessary.
In preparing the PaineWebber IHC Opinion, PaineWebber relied on the accuracy
and completeness of all information that was either publicly available or
supplied, communicated or otherwise made available to it by or on behalf of
the Patriot Companies, Wyndham and IHC, and PaineWebber did not assume any
responsibility to independently verify such information or undertake an
independent appraisal of the assets of the Patriot Companies, Wyndham or IHC.
With respect to the financial forecasts examined by it, PaineWebber assumed
that they were reasonably prepared on bases reflecting the best currently
available estimates and good faith judgments of the respective managements of
the Patriot Companies and IHC as to the future performance of the Patriot
Companies and IHC, respectively, and their respective assets, including with
respect to the Patriot Companies, assets to be acquired in the Merger, the
Crow Assets Acquisition and certain other acquisitions. At the Patriot
Companies' direction, PaineWebber assumed that the Merger will be consummated
in accordance
S-15
<PAGE>
with the terms of the Merger Agreement prior to the effectiveness of the
Patriot/IHC Merger, that Patriot REIT is not subject to Section 269B(a)(3) of
the Code, that Patriot REIT will qualify to be treated as a "real estate
investment trust" within the meaning of the Code before and after giving
effect to the Patriot/IHC Merger, that the representations and warranties of
each of the parties to the Patriot/IHC Merger Agreement were true and correct
as of the date of the Patriot/IHC Merger Agreement or as of such other date or
dates specified therein and will be true and correct at the closing of the
Patriot/IHC Merger to the extent required to be true and correct on such date
under the terms of the Patriot/IHC Merger Agreement, in each case subject to
such qualifications as may be specified therein, and that the Patriot/IHC
Merger will be treated as a tax-free reorganization for federal income tax
purposes. PaineWebber further assumed that the Patriot/IHC Merger will be
consummated in accordance with the terms described in the Patriot/IHC Merger
Agreement. With the Patriot Companies' consent, PaineWebber's analyses used in
preparing the PaineWebber IHC Opinion assumed the conversion or exchange for
Paired Shares of all equity securities convertible or exchangeable for Paired
Shares, including OP Units, but excluding outstanding stock options.
PaineWebber assumed, with the Patriot Companies' consent, that all material
assets and liabilities (contingent or otherwise, known or unknown) of the
Patriot Companies, Wyndham and IHC are as set forth in their respective
consolidated financial statements. The PaineWebber IHC Opinion is based upon
regulatory, economic, monetary and market conditions existing on the date
thereof. Furthermore, PaineWebber expressed no opinion as to the price or
trading range at which Paired Shares will trade in the future.
The PaineWebber IHC Opinion does not address the business decision of the
Patriot REIT Board and the Patriot Operating Company Board to engage in the
Patriot/IHC Merger or the relative merits of the Patriot/IHC Merger and any
other transactions or business strategies discussed by the Patriot REIT Board
and the Patriot Operating Company Board as alternatives to the Patriot/IHC
Merger, or constitute a recommendation to any holder of Paired Shares as to
how such holder should vote with respect to the Patriot/IHC Merger.
The PaineWebber IHC Opinion states that, on the basis of, and subject to the
foregoing, PaineWebber is of the opinion that, as of the date of such opinion,
the IHC Merger Consideration is fair to holders of Paired Shares from a
financial point of view.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances, and
therefore, such opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of the analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber IHC Opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty and neither the Patriot Companies nor
PaineWebber assumes responsibility for the accuracy of such analyses or
estimates.
The following paragraphs summarize the significant quantitative and
qualitative analyses performed by PaineWebber in arriving at the PaineWebber
IHC Opinion.
Discounted Cash Flow Valuation
PaineWebber analyzed IHC based on a discounted cash flow analysis utilizing
projections of unleveraged free cash flow prepared by the management of IHC
for the years 1998 through 2002, inclusive. PaineWebber utilized the
projections based on two scenarios, one assuming growth solely from assets in
place (the "No External Growth Scenario") and one assuming external growth
through the acquisition of additional properties (the "External Growth
Scenario"). PaineWebber determined a range of terminal enterprise values for
IHC by applying a range of multiples of 9.0x to 11.0x to IHC's projected
earnings before interest expense, income taxes, depreciation and amortization
("EBITDA") for 2002. PaineWebber then derived a range of values for IHC Common
Stock by (i) combining the present value of unleveraged free cash flow and the
present value of
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<PAGE>
terminal enterprise value, in each case assuming discount rates of 13.0% to
16.0%, (ii) subtracting net debt and minority interests and (iii) dividing by
the number of shares of IHC Common Stock outstanding. The discounted cash flow
valuation utilizing the No External Growth Scenario produced a range of values
for IHC Common Stock of $28.55 to $44.55. The discounted cash flow valuation
utilizing the External Growth Scenario produced a range of values of IHC
Common Stock of $28.61 to $47.68. PaineWebber noted that the equity value
implied by the IHC Merger Consideration of $37.50 per share of IHC Common
Stock was within the range of implied IHC Common Stock values produced by the
discounted cash flow valuation.
Selected Comparative Public Companies Analysis
Using publicly available information, PaineWebber compared projected
financial, operating and stock market performance data of IHC to the
corresponding data of certain publicly traded companies that PaineWebber
considered comparative (the "Comparative Companies"). The Comparative
Companies consisted of Bristol Hotel Company, Doubletree Corporation, Capstar
Hotel Company, Marriott International, Inc., Promus Hotel Corporation and Host
Marriott Corporation.
PaineWebber derived ranges of values for IHC Common Stock by applying the
projected earnings per share ("EPS") of IHC for the year ending December 31,
1998 to the corresponding range of EPS multiples for the Comparative
Companies. The EPS projections for IHC were provided by IHC management, and
included external growth assumptions. The EPS estimates for the Comparative
Companies were based on average research analyst earnings estimates for such
period as reported by First Call. In calculating the EPS multiples for the
selected period, the November 18, 1997 closing stock trading prices of the
Comparative Companies were used. PaineWebber observed that the EPS multiples
for the Comparative Companies for the year ending December 31, 1998 ranged
from 20.7x to 23.5x. Based on IHC's projected EPS and the range of EPS
multiples for the Comparative Companies for the year ending December 31, 1998,
this method produced a range of values for IHC Common Stock of $35.24 to
$39.99.
PaineWebber also derived ranges of values for IHC Common Stock based on
IHC's projected EBITDA for the year ending December 31, 1998 and a range of
EBITDA multiples for the Comparative Companies. The projected EBITDA for IHC
was supplied by IHC's management and included external growth assumptions. The
EBITDA estimates for the year ending December 31, 1998 for the Comparative
Companies were based on the recent publicly available analyst research reports
as of November 18, 1997. In calculating the EBITDA multiples for the selected
period, the November 18, 1997 closing stock trading prices of the Comparative
Companies were used. PaineWebber observed that the EBITDA multiples for the
Comparative Companies ranged from 7.9x to 11.3x. Based on IHC's projected
EBITDA for the year ending December 31, 1998 and the range of EBITDA multiples
for the Comparative Companies, this method produced a range of values for IHC
Common Stock of $25.26 to $46.71.
PaineWebber noted that the equity value implied by the IHC Merger
Consideration of $37.50 per share of IHC Common Stock was within the range of
implied IHC Common Stock values produced by the selected comparative public
companies analysis.
Pro Forma Merger Analysis
PaineWebber performed an analysis of the effect of the Patriot/IHC Merger on
the Patriot Companies' pro forma FFO per Paired Share for 1998, 1999 and 2000,
based on projections and other information provided by the managements of the
Patriot Companies and IHC and assuming a closing date for the Patriot/IHC
Merger of April 1, 1998. PaineWebber combined the projected results of the
Patriot Companies (which assumed completion of the Merger) with the projected
results of IHC to arrive at projected pro forma FFO for the Patriot Companies
following the Patriot/IHC Merger (the "Combined Companies"). At the Patriot
Companies' direction, PaineWebber assumed (a) certain expense and synergy
savings resulting from the Patriot/IHC Merger, (b) termination of certain
franchise agreements between IHC and Marriott (relating to hotels owned by
IHC) following the Patriot/IHC Merger, and the conversion of such hotels to
the Wyndham brand, resulting in certain assumed royalty fee savings and
conversion costs for the Combined Companies, (c) transfer of certain
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<PAGE>
management agreements (relating to hotels owned by IHC) to Marriott following
the Patriot/IHC Merger, resulting in certain additional management fees to be
paid by the Combined Companies and (d) the refinancing of IHC's outstanding
indebtedness. At the Patriot Companies' direction, PaineWebber assumed certain
transaction costs associated with the Patriot/IHC Merger, including employee
termination costs and certain costs associated with the cash settlement of
outstanding IHC stock options. At the Patriot Companies' direction,
PaineWebber assumed that the amortization of acquired intangibles will be
added back to net income for the purpose of calculating FFO and assumed that
the Combined Companies would complete an equity offering generating net
proceeds of approximately $200 million following completion of the Patriot/IHC
Merger, with the proceeds utilized to reduce outstanding indebtedness. With
respect to the pro forma merger analysis, PaineWebber considered three
alternative scenarios with respect to IHC's third-party hotel management
business, including a discount of 0%, 15% and 30% of management fee revenues
from this business for periods following the Patriot/IHC Merger.
PaineWebber divided the resulting pro forma FFO for the Combined Companies
by the weighted average number of Paired Shares expected to be outstanding
upon consummation of the Patriot/IHC Merger. PaineWebber then compared the
resulting pro forma FFO per Paired Share for each year to the projected stand-
alone FFO per Paired Share of the Patriot Companies, based on projections
supplied by the Patriot Companies. This analysis indicated that the pro forma
impact of the Patriot/IHC Merger was accretive to FFO per Paired Share in
1998, 1999 and 2000 in all scenarios utilized. While PaineWebber noted that
the Patriot/IHC Merger would also increase the Combined Companies' ratio of
debt-to-total market capitalization (notwithstanding the impact of the assumed
equity offering), PaineWebber did not view this increase to be sufficiently
significant so as to impact the usefulness of the pro forma merger analysis.
Selected Transactions Analysis
PaineWebber reviewed the financial terms, to the extent publicly available,
of five announced or completed mergers involving lodging companies (the
"PaineWebber Selected Transactions"). The PaineWebber Selected Transactions
included (acquiror/target): (i) Starwood Lodging Trust/Westin Hotels Limited
Partnership; (ii) Starwood Lodging Trust/ITT Corporation; (iii) Marriott
International, Inc./Renaissance Hotel Group N.V.; (iv) FelCor Suite Hotels,
Inc./Crown Sterling Suites; and (v) Doubletree Corporation/Red Lion Hotels,
Inc. PaineWebber derived ranges of values for IHC Common Stock based on IHC's
pro forma EBITDA for the twelve months ended September 30, 1997, as furnished
by IHC's management, and the range of implied EBITDA multiples for each of the
PaineWebber Selected Transactions, based upon latest available trailing twelve
months financial data at the time of the merger announcement and closing stock
prices for acquiring companies one week prior to the merger announcement.
PaineWebber noted that implied EBITDA multiples for the PaineWebber Selected
Transactions ranged from 11.2x to 15.8x. Applying these multiples to IHC's pro
forma EBITDA, PaineWebber calculated a range of values for IHC Common Stock of
$30.50 to $52.81. PaineWebber noted that the equity value implied by the IHC
Merger Consideration of $37.50 per share of IHC Common Stock was within the
range of implied values produced by the selected transactions analysis.
Contribution Analysis
PaineWebber reviewed the financial contribution of the Patriot Companies and
IHC to the Combined Companies on a projected pro forma basis for 1998 and
1999, assuming prior completion of the Merger. PaineWebber noted that, on a
pro forma basis, the Patriot Companies will constitute approximately 71.4% of
the enterprise value of the Combined Companies upon completion of the
Patriot/IHC Merger. Using projected results supplied by management of the
Patriot Companies and IHC for the years ending December 31, 1998 and December
31, 1999, and without attributing potential expense and synergy savings from
the Patriot/IHC Merger or assuming external growth or any potential brand
conversions or transfers of management for IHC-owned hotels, PaineWebber
calculated that the Patriot Companies would contribute approximately 68.1% of
pro forma EBITDA for the Combined Companies in 1998 (on a full year basis) and
approximately 67.7% of pro forma EBITDA for the Combined Companies in 1999. In
each case, PaineWebber noted that the Patriot Companies
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<PAGE>
will constitute a greater percentage of the enterprise value of the Combined
Companies than would be implied by the pro forma contribution of EBITDA of the
Patriot Companies to the Combined Companies.
Pursuant to an engagement letter dated November 25, 1997, PaineWebber will
receive a fee of $750,000 from Wyndham for delivery of the PaineWebber Wyndham
Opinion. PaineWebber will also be reimbursed by Wyndham for its reasonable
out-of-pocket expenses in connection with the PaineWebber Wyndham Opinion.
Wyndham has also agreed to indemnify PaineWebber, its affiliates and their
respective directors, officers, employees, agents and controlling persons
against certain liabilities, including liabilities under federal securities
laws.
Pursuant to an engagement letter dated November 13, 1997, PaineWebber will
receive a fee of $750,000 for delivery of the PaineWebber IHC Opinion
("PaineWebber IHC Opinion Fee") from the Patriot Companies. In addition,
PaineWebber will receive a financial advisory fee of $8.55 million upon
consummation of the Patriot/IHC Merger from the Patriot Companies, against
which the PaineWebber IHC Opinion Fee will be credited. PaineWebber will also
be reimbursed by the Patriot Companies for its reasonable out-of-pocket
expenses, up to a maximum of $25,000 unless previously approved by the Patriot
Companies. The Patriot Companies have agreed to indemnify PaineWebber, its
affiliates and their respective directors, officers, employees, agents and
controlling persons against certain liabilities, including liabilities under
federal securities laws. In addition, PaineWebber has also been engaged by the
Patriot Companies as their financial advisor with regard to the Merger and
will receive fees from the Patriot Companies pursuant to such engagement. See
"The Merger Agreement and Subscription-Opinion of Financial Advisor to the
Patriot Companies" in the original Joint Proxy Statement/Prospectus.
PaineWebber has provided financial advisory and investment banking services
(including acting as an underwriter) to Old Patriot REIT and the Patriot
Companies, has acted as a lender to Old Patriot REIT, and has acted and
continues to act as a lender to the Patriot Companies and certain of its
affiliates or related entities. PaineWebber may provide financial advisory and
investment banking services to, may act as an underwriter or placement agent
for, and may act as a lender to, the Patriot Companies in the future. In the
ordinary course of its business, PaineWebber trades the equity and debt
securities of the Patriot Companies, Wyndham and IHC for its own account and
the account of its customers and, accordingly, may at any time hold long or
short positions in such securities. In addition to its regular trading
activities, PaineWebber currently owns approximately 1.0 million Paired Shares
which it purchased from the Patriot Companies on November 13, 1997. An
affiliate of PaineWebber recently acquired certain land in San Mateo,
California from Patriot REIT and is currently leasing such land back to a
subsidiary of Patriot REIT.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS AND DEVELOPMENTS
The payment of any Additional Cash Consideration pursuant to the Merger
Agreement will affect certain of the tax consequences of the Merger to
stockholders of Wyndham as described in the Joint Proxy Statement/Prospectus
under the caption "Certain Federal Income Tax Considerations--Tax Consequences
of the Merger." For purposes of determining the amount of gain recognized in
the Merger by stockholders of Wyndham, a stockholder's "boot" (as defined in
the above-referenced tax discussion) will include any Additional Cash
Consideration received by the stockholder in the Merger. Also, for purposes of
determining the aggregate tax basis of shares of Patriot REIT Common Stock
received by a Wyndham stockholder in the Merger, the amount of any Additional
Cash Consideration received by such stockholder will be added to the amount of
any cash received in connection with the Merger pursuant to a Cash Election or
in lieu of fractional shares of Wyndham International Common Stock (and all
such cash will decrease basis as described in the above-referenced tax
discussion).
As discussed in the Joint Proxy Statement/Prospectus under the caption
"Certain Federal Income Tax Considerations--Federal Income Taxation of Holders
of Paired Shares," the Taxpayer Relief Act of 1997 (the "Relief Act") altered
the taxation of certain capital gain income. The Relief Act allows the IRS to
prescribe regulations on, among other things, how the Relief Act's new capital
gain rates will apply to sales of capital
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<PAGE>
assets by "pass-thru entities," which include REITs such as Patriot REIT. On
November 10, 1997, the IRS announced that it will issue temporary regulations
providing that a REIT such as Patriot REIT may designate a capital gain
dividend as a 20% rate gain distribution, an unrecaptured section 1250 gain
distribution, or a 28% rate gain distribution. If no such additional
designation is made regarding a capital gain dividend, it will be deemed a 28%
rate gain distribution. In general, the temporary regulations will provide that
a REIT will determine the maximum amounts which may be designated in each class
of capital gain dividends as if the REIT were an individual whose ordinary
income is subject to a marginal tax rate of at least 28%. Similar rules will
apply in the case of retained capital gains that are designated to be included
in income by Patriot REIT's stockholders (and for which the stockholders
receive credit for the taxes paid by Patriot REIT).
PLAN OF DISTRIBUTION
As described in the Joint Proxy Statement/Prospectus, the Joint Proxy
Statement/Prospectus also relates to the offer and resale, from time to time by
the Registration Rights Holders of Paired Shares, including the Paired Shares
that are issuable upon conversion of shares of Series A Preferred Stock. See
"The Merger and Subscription--Interests of Certain Officers, Directors and
Stockholders of Wyndham--Registration Rights Agreement" in the Joint Proxy
Statement/Prospectus. The Joint Proxy Statement/Prospectus also sets forth the
manner in which the distribution of such Paired Shares may be effected. See
"Plan of Distribution" in the Joint Proxy Statement/Prospectus. In addition to
the means of effecting the distribution of such Paired Shares set forth in the
Joint Proxy Statement/Prospectus, in connection with distributions of the
Paired Shares or otherwise, the Registration Rights Holders may enter into
hedging transactions with broker-dealers or others prior to or after the
Effective Time of the Merger. Such broker-dealers may engage in short sales of
Paired Shares or other transactions in the course of hedging the positions
assumed by such persons in connection with such hedging transactions or
otherwise. The Registration Rights Holders may also sell Paired Shares short
and redeliver Paired Shares to close out such short positions; enter into
option or other transactions with broker-dealers or others which may involve
the delivery to such persons of the Paired Shares offered hereby, which Paired
Shares such persons may resell pursuant to this Supplement and the Joint Proxy
Statement/Prospectus; and or pledge the Paired Shares to a broker or dealer or
others and, upon a default, such persons may effect sales of the pledged Paired
Shares pursuant to this Supplement and the Joint Proxy Statement/Prospectus. In
addition, any Paired Shares covered by this Supplement and the Joint Proxy
Statement/Prospectus that qualify for resale pursuant to Rule 145 of the
Securities Act may be sold under Rule 145 rather than with this Supplement and
the Joint Proxy Statement/Prospectus.
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<PAGE>
SELECTED FINANCIAL INFORMATION
PATRIOT REIT AND PATRIOT OPERATING COMPANY
SELECTED HISTORICAL FINANCIAL DATA
The following tables set forth separate and combined historical financial
information for Patriot REIT and Patriot Operating Company, as well as
combined historical financial information for the Combined Lessees, which as
of September 30, 1997 included CHC Lease Partners, NorthCoast Hotels, L.L.C.
("NorthCoast Lessee"), DTR North Canton, Inc. ("Doubletree Lessee"), Crow
Hotel Lessee, Inc., Metro Hotel Leasing Corporation ("Metro Lease Partners"),
Grand Heritage Leasing, L.L.C. and PAH RSI, L.L.C. ("PAH RSI Lessee"). The
following financial information should be read in conjunction with, and is
qualified in its entirety by, the historical financial statements and notes
thereto of Patriot REIT and Patriot Operating Company included elsewhere in
this Supplement and the historical financial statements and notes thereto of
Patriot REIT and Patriot Operating Company, Old Patriot REIT, CHC Lease
Partners, NorthCoast Lessee and PAH RSI Lessee incorporated by reference into
this Supplement.
The Cal Jockey Merger that occurred on July 1, 1997 has been accounted for
as a reverse acquisition whereby Cal Jockey was considered to be the acquired
company for accounting purposes. Consequently, the historical financial
information of Old Patriot REIT became the historical financial information
for Patriot REIT. Similarly, Patriot Operating Company commenced its
operations for accounting purposes concurrent with the closing of the Cal
Jockey Merger.
Unless otherwise indicated, all references to the number of shares and per
share amounts of Patriot REIT, Patriot Operating Company and Old Patriot REIT
have been restated to reflect the impact of the conversion of each share of
Old Patriot REIT Common Stock into 0.51895 Paired Shares issued in the Cal
Jockey Merger and the 1.927-for-1 stock split effected in the form of a stock
dividend distributed in July 1997. In addition, all references to the number
of shares and per share amounts related to periods prior to March 1997 have
been restated to reflect the impact of the 2-for-1 stock split on Old Patriot
REIT's common stock effected in the form of a stock dividend distributed in
March 1997.
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<PAGE>
PATRIOT REIT AND
PATRIOT OPERATING COMPANY
SELECTED CONDENSED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue............. $ 11,095 $ 76,493 $ 154,756
Income before income tax
provision, minority
interests and
extraordinary item....... 7,064 44,813 1,480
Income (loss) before
extraordinary item....... 6,096 37,991 (1,304)
Net income (loss)
applicable to common
shareholders............. $ 5,359 $ 37,991 $ (3,838)
PER SHARE DATA(1):
Income (loss) before
extraordinary item....... $ 0.21 $ 1.06 $ (0.03)
Extraordinary item, net of
minority interests....... (0.03) -- (0.05)
--------- --------- ----------
Net income (loss) per
common Paired Share...... $ 0.18 $ 1.06 $ (0.08)
========= ========= ==========
Dividends per common
Paired Share(2).......... $ 0.24 $ 0.9825 $ 0.8475
========= ========= ==========
Weighted average number of
common shares and common
share equivalents
outstanding.............. 29,350 35,938 51,104
========= ========= ==========
CASH FLOW DATA:
Cash provided by operating
activities............... $ 7,618 $ 61,196 $ 75,886
Cash used in investing
activities............... (306,948) (419,685) (710,127)
Cash provided by financing
activities............... 304,099 360,324 649,152
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate
and related improvements,
at cost, net............. $ 265,759 $ 641,825 $1,477,512
Total assets.............. 324,224 760,931 1,980,107
Total debt................ 9,500 214,339 727,177
Minority interest in
Patriot Partnerships..... 41,522 68,562 257,274
Minority interest in
consolidated
subsidiaries............. -- 11,711 29,284
Shareholders' equity...... 261,778 437,039 880,329
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OTHER DATA:
Funds from operations(3).. $ 9,798 $ 64,463 $ 78,112
Cash available for
distribution(4).......... 8,603 55,132 65,533
Weighted average number of
common shares and OP
Units outstanding(5)..... 34,001 42,200 59,630
</TABLE>
(Notes on page S-26)
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<PAGE>
PATRIOT REIT
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenue.............. $ 11,095 $ 76,493 $ 123,308
Income before minority
interests and
extraordinary item........ 7,064 44,813 549
Income (loss) before
extraordinary item........ 6,096 37,991 (2,013)
Net income (loss)
applicable to common
shareholders.............. $ 5,359 $ 37,991 $ (4,547)
PER SHARE DATA(1):
Income (loss) before
extraordinary item........ $ 0.21 $ 1.06 $ (0.04)
Extraordinary item, net of
minority interests........ (0.03) -- (0.05)
--------- --------- ----------
Net income (loss) per
common share.............. $ 0.18 $ 1.06 $ (0.09)
========= ========= ==========
Dividends per common
share(2).................. $ 0.24 $ 0.9825 $ 0.8475
========= ========= ==========
Weighted average number of
common shares and common
share equivalents
outstanding............... 29,350 35,938 51,104
========= ========= ==========
CASH FLOW DATA:
Cash provided by operating
activities................ $ 7,618 $ 61,196 $ 71,236
Cash used in investing
activities................ (306,948) (419,685) (680,381)
Cash provided by financing
activities................ 304,099 360,324 612,873
<CAPTION>
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1995 1996 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in real estate
and related improvements,
at cost, net.............. $ 265,759 $ 641,825 $1,459,583
Total assets............... 324,224 760,931 1,843,365
Total debt................. 9,500 214,339 727,177
Minority interest in
Patriot REIT Partnership.. 41,522 68,562 218,196
Minority interest in
consolidated
subsidiaries.............. -- 11,711 29,284
Shareholders' equity....... 261,778 437,039 794,359
</TABLE>
(Notes on page S-26)
S-23
<PAGE>
PATRIOT OPERATING COMPANY
SELECTED CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
OPERATING DATA:
Total revenue.............................................. $ 44,184
Income before income tax provision and minority interests.. 931
Net income applicable to common shareholders............... $ 709
PER SHARE DATA:
Net income per common share................................ $ 0.01
========
Dividends per common share(2).............................. $ --
========
Weighted average number of common shares and common share
equivalents outstanding................................... 51,104
========
CASH FLOW DATA:
Cash provided by operating activities...................... $ 4,650
Cash used in investing activities.......................... (29,746)
Cash provided by financing activities...................... 36,279
<CAPTION>
SEPTEMBER 30,
1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in furniture, fixtures and equipment, at cost,
net....................................................... $ 17,929
Total assets............................................... 166,345
Minority interest in Patriot Operating Company
Partnership............................................... 39,078
Shareholders' equity....................................... 85,970
</TABLE>
(Notes on page S-26)
S-24
<PAGE>
COMBINED LESSEES
SELECTED COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF YEAR ENDED NINE MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 SEPTEMBER 30, 1997
------------------- ------------ ------------------
(UNAUDITED)
<S> <C> <C> <C>
FINANCIAL DATA:
Room revenue.............. $21,508 $155,856 $207,924
Food and beverage
revenue.................. 8,649 56,833 82,628
Conference center
revenue.................. 576 2,354 1,870
Club, club membership and
spa revenue.............. -- -- 21,500
Shopping center revenue... -- -- 1,311
Telephone and other....... 1,732 14,467 26,268
------- -------- --------
Total revenue............. 32,465 229,510 341,501
Hotel operating expenses.. 20,801 150,037 228,686
Participating Lease
payments................. 10,582 75,893 104,534
------- -------- --------
Income before Lessee
expenses................. 1,082 3,580 8,281
Lessee expenses(6)........ 573 4,588 8,260
------- -------- --------
Net income (loss)......... $ 509 $ (1,008) $ 21
======= ======== ========
</TABLE>
(Notes on following page)
S-25
<PAGE>
NOTES TO PATRIOT REIT, PATRIOT OPERATING COMPANY AND COMBINED LESSEE SELECTED
FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot REIT Board declared a 2-for-1 stock
split effected in the form of a stock dividend distributed on March 18,
1997 to stockholders of record on March 7, 1997. On July 1, 1997, by
operation of the Cal Jockey Merger, each issued and outstanding share of
Old Patriot REIT Common Stock was converted into 0.51895 Paired Shares. In
addition, on July 10, 1997, the respective Boards of Directors of Patriot
REIT and Patriot Operating Company declared a 1.927-for-1 stock split on
its shares of common stock effected in the form of a stock dividend
distributed on July 25, 1997 to stockholders of record on July 15, 1997.
All references herein to the number of shares, per share amounts, and
market prices of Patriot REIT Common Stock and options to purchase Patriot
REIT Common Stock have been restated to reflect the impact of the Cal
Jockey Merger and the above-described stock splits, as applicable.
(2) Dividends paid for the nine months ended September 30, 1997 include a
special dividend of $0.06 per share paid by Old Patriot REIT on June 30,
1997. To maintain its qualification as a REIT prior to consummation of the
Cal Jockey Merger, Old Patriot REIT was required to distribute to its
stockholders any undistributed "real estate investment trust taxable
income" of Old Patriot REIT for Old Patriot REIT's short taxable year
ending with the consummation of the Cal Jockey Merger. No dividends have
been paid by Patriot Operating Company for the three months ended
September 30, 1997.
(3) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, plus depreciation of real
property, and amortization of goodwill and after adjustments for
unconsolidated partnerships, joint ventures and corporations. Adjustments
for Patriot REIT's unconsolidated subsidiaries are calculated to reflect
Funds from Operations on the same basis. The Patriot Companies have also
made certain adjustments to funds from operations for real estate related
amortization expense and the write off of certain costs of acquiring
leaseholds. Funds from operations should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of operating performance or to cash
flows from operating, investing or financing activities as a measure of
liquidity. Funds from operations does not reflect working capital changes,
cash expenditures for capital improvements or principal payments on
indebtedness. Under the Participating Leases, Patriot REIT is obligated to
establish a reserve for capital improvements at its hotels (including the
replacement or refurbishment of F, F & E) and to pay real estate and
personal property taxes and casualty insurance. Management believes that
funds from operations is helpful to investors as a measure of the
performance of an equity REIT, because, along with cash flows from
operating activities, investing activities and financing activities, it
provides investors with an understanding of the ability of the Patriot
Companies to incur and service debt and make capital expenditures.
(4) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(5) The number of OP Units used in the calculation is based on the equivalent
number of shares of Patriot REIT Common Stock and Patriot Operating
Company Common Stock after giving effect to the change in the OP Unit
conversion factor which coincides with the 2-for-1 stock split, the
conversion of shares in the Cal Jockey Merger and the 1.927-for-1 stock
split.
(6) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned
by the Lessees.
S-26
<PAGE>
WYNDHAM HOTEL CORPORATION
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated historical financial
information for Wyndham, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Wyndham incorporated by reference into, or appearing elsewhere in,
this Supplement.
WYNDHAM HOTEL CORPORATION
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
---------------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $ 56,802 $ 61,277 $ 76,266 $ 87,890 $148,075 $165,256
Operating income........ 8,419 7,094 12,337 14,625 26,003 28,796
Net income.............. 163 1,654 6,265 7,949 23,966 10,203
Net income per share.... N/A N/A N/A N/A $ 1.20 $ 0.50
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A 20,018 20,382
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
-------- -------- -------- -------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $108,647 $113,465 $113,276 $133,403 $242,962 $450,299
Total partners' capital
(deficit) and
stockholders' equity... (7,303) (1,488) 1,716 17,557 75,584 138,252
</TABLE>
S-27
<PAGE>
INTERSTATE HOTELS COMPANY
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth selected consolidated historical financial
information for IHC, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of IHC included elsewhere in this Supplement.
INTERSTATE HOTELS COMPANY
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, NINE MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $19,873 $25,564 $36,726 $45,018 $190,385 $ 469,589
Operating income........ 3,622 6,904 12,345 15,537 34,133 83,752
Net income (loss)....... 3,620 6,910 12,389 15,839 (1,616) 32,500
Net income per share.... N/A N/A N/A N/A N/A $ 0.91
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A N/A 35,638
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------- AS OF
1992 1993 1994 1995 1996 SEPTEMBER 30, 1997
------- ------- ------- ------- -------- ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $24,270 $24,436 $30,741 $61,401 $883,761 $1,350,253
Total equity............ 16,685 16,627 18,858 9,256 409,298 445,117
</TABLE>
S-28
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Patriot Operating Company and should be read in conjunction with, and
are qualified in their entirety by, the historical financial statements of
Patriot REIT and Patriot Operating Company included elsewhere in this
Supplement and the historical financial statements and notes thereto of
Patriot REIT, Patriot Operating Company, Old Patriot REIT, Cal Jockey and Bay
Meadows incorporated by reference into this Supplement. This information
should also be read in conjunction with, and is qualified in its entirety by,
the pro forma financial statements and notes thereto located elsewhere in this
Supplement. The pro forma operating information is presented as if the Cal
Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other
transactions (which include (i) the sale of substantially all of the Cal
Jockey land to an affiliate of PaineWebber; (ii) the leaseback of the land on
which the Racecourse is situated from the PaineWebber affiliate to Patriot
REIT; (iii) the sublease of the Racecourse land and related improvements from
Patriot REIT to Patriot Operating Company; (iv) the leasing of certain land
from Patriot REIT to Borders, Inc.; (v) the acquisition of 23 hotels by
Patriot REIT (excluding the Park Shore Hotel and the Sheraton City Centre);
(vi) the funding of $103,000 in mortgage notes to affiliates of CHC Lease
Partners; (vii) the replacement of the old line of credit facility with the
Revolving Credit Facility and the Term Loan; (viii) the acquisition of a
participating note; (ix) consummation of the offering of 10,580,000 Paired
Shares; (x) the lease of 59 hotel properties to Patriot Operating Company; and
(xi) the acquisition of 24 hotels, the private placement of equity securities
and the public offering of common stock, which were consummated by Old Patriot
REIT during 1996) had occurred on January 1, 1996. The pro forma combined
balance sheet data of Patriot REIT and Patriot Operating Company is presented
as if the CHCI Merger and certain other transactions, as described above, had
occurred as of September 30, 1997. The pro forma financial statements which
are adjusted to account for the Wyndham Transactions begin on page S-71, and
the pro forma financial statements which are adjusted to account for the WHG
Merger begin on page S-94. The pro forma financial statements, which are
adjusted to account for the Patriot/IHC Merger and the Buena Vista Acquisition
begin on page S-104.
PATRIOT REIT AND PATRIOT OPERATING COMPANY
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $686,236 $ 553,326
Income before income tax provision and
minority interests.......................... 41,798 49,337
Net income applicable to common
shareholders................................ $ 33,834 $ 40,874
PER SHARE DATA:
Net income per common share.................. $ 0.45 $ 0.54
======== ==========
Weighted average number of common shares and
common share equivalents outstanding........ 75,516 76,090
======== ==========
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Investment in real estate and related
improvements, at cost, net.................. $1,657,283
Total assets................................. 2,107,152
Total debt................................... 789,930
Minority interest in the Patriot
Partnerships................................ 264,862
Shareholders' equity......................... 935,217
</TABLE>
(Notes on page S-32)
S-29
<PAGE>
PATRIOT REIT
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $222,110 $180,229
Income before income tax provision and
minority interests..................... 67,450 58,539
Net income applicable to common
shareholders........................... $ 56,416 $ 48,742
PER SHARE DATA:
Net income per common share............. $ 0.75 $ 0.64
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 75,516 76,090
======== ========
</TABLE>
PATRIOT OPERATING COMPANY
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $647,772 $516,958
Loss before income tax provision and
minority interests..................... (25,652) (9,202)
Net loss applicable to common
shareholders........................... $(22,582) $ (7,868)
PER SHARE DATA:
Net loss per common share............... $ (0.30) $ (0.10)
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 75,516 76,090
======== ========
</TABLE>
(Notes on page S-32)
S-30
<PAGE>
COMBINED LESSEES
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except CHC Lease
Partners, PAH RSI Lessee and Grand Heritage Leasing, L.L.C.) and should be
read in conjunction with, and are qualified in their entirety by, the
historical financial statements and notes thereto of Patriot REIT and Patriot
Operating Company which are included herein and incorporated by reference into
this Supplement and NorthCoast Lessee which are incorporated by reference into
this Supplement. This information should also be read in conjunction with the
pro forma financial statements and notes thereto of the Combined Lessees
located elsewhere in this Supplement. The pro forma operating information is
presented as if the 18 hotels that Patriot REIT leases to the Lessees pursuant
to Participating Leases (excluding the Park Shore Hotel) had been leased as of
January 1, 1996. The pro forma financial data assumes the 25 hotels formerly
leased to CHC Lease Partners and the eight hotels formerly leased to PAH RSI
Lessee are leased to Patriot Operating Company and the three hotel leases held
by Grand Heritage Leasing, L.L.C. were acquired by Patriot Operating Company.
<TABLE>
<CAPTION>
PRO FORMA(2)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue............................. $ 88,410 $ 72,100
Food and beverage........................ 36,878 28,663
Telephone and other hotel revenue........ 7,837 6,193
-------- --------
Total revenue............................ 133,125 106,956
Hotel operating expenses................. 90,929 69,507
Participating Lease payments(3).......... 41,749 34,373
-------- --------
Income before Lessee expenses............ 447 3,076
Lessee expenses(4)....................... 3,914 2,493
-------- --------
Net income (loss)........................ $ (3,467) $ 583
======== ========
</TABLE>
(Notes on following page)
S-31
<PAGE>
NOTES TO PATRIOT REIT, PATRIOT OPERATING COMPANY AND COMBINED LESSEES SELECTED
PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot
REIT's and Patriot Operating Company's combined financial position or
Patriot REIT's, Patriot Operating Company's or the Lessees' results of
operations actually would have been if the Cal Jockey Merger, the GAH
Acquisition, the CHCI Merger and certain other transactions (including (i)
the lease of 59 hotel properties to Patriot Operating Company, (ii) the
sale of substantially all of the Cal Jockey land to the PaineWebber
affiliate, (iii) the leaseback of the land on which the Racecourse is
situated from the PaineWebber affiliate to Patriot REIT, (iv) the sublease
of the Racecourse land and related improvements from Patriot REIT to
Patriot Operating Company, (v) the leasing of certain land from Patriot
REIT to Borders, Inc., (vi) the acquisition of 23 hotels by Patriot REIT
(excluding the Park Shore Hotel and Sheraton City Centre), (vii) the
funding of $103,000 in mortgage notes to affiliates of CHC Lease Partners,
(viii) the replacement of the old line of credit facility with the
Revolving Credit Facility and the Term Loan, (ix) the acquisition of a
participating note and (x) the consummation of the offering of 10,580,000
Paired Shares) had in fact occurred on such date or at the beginning of
the period presented, or to project the results of operations of Patriot
REIT or Patriot Operating Company for any future periods.
Additionally, if the interest rate increases by 0.25%, the resulting pro
forma net income would be $32,477 and $39,860, or $0.43 and $0.53 per common
Paired Share for the year ended December 31, 1996 and the nine months ended
September 30, 1997, respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Cal Jockey
Merger and certain other transactions had in fact occurred at the
beginning of the period indicated, or to project the results of operations
of the Lessees for any future periods. The Lessees' pro forma financial
data presented does not include the operations of CHC Lease Partners,
which leased 25 hotels, PAH RSI Lessee, which leased eight hotels, and
Grand Heritage Leasing, L.L.C. which leased three hotels. The pro forma
financial data assumes these hotels are leased to Patriot Operating
Company.
(3) Participating lease payments from the Lessees to Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease year.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned
by the Lessees. Pro forma Lessee net income excludes dividends on
approximately 100,000 OP Units of the Patriot Partnerships, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
S-32
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Wyndham International and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Old Patriot REIT, Cal Jockey and Bay Meadows and the combined
historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Supplement and by the separate and
combined historical financial statements of Patriot REIT and Patriot Operating
Company and the historical financial statements of Wyndham included elsewhere
in this Supplement. This information should also be read in conjunction with
the pro forma financial statements and notes thereto located elsewhere in this
Supplement. The pro forma operating information is presented as if the Merger
and the Related Transactions and the Crow Assets Acquisition (collectively,
the "Wyndham Transactions"), the Cal Jockey Merger, the GAH Acquisition, the
CHCI Merger and certain other transactions (which include (i) the sale of
substantially all of the Cal Jockey land to an affiliate of PaineWebber; (ii)
the leaseback of the land on which the Racecourse is situated from the
PaineWebber affiliate to Patriot REIT; (iii) the sublease of the Racecourse
land and related improvements from Patriot REIT to Patriot Operating Company;
(iv) the leasing of certain land from Patriot REIT to Borders, Inc.; (v) the
acquisition of 23 hotels by Patriot REIT (excluding the Park Shore Hotel and
the Sheraton City Centre); (vi) the funding of $103,000 in mortgage notes to
affiliates of CHC Lease Partners; (vii) the replacement of the old line of
credit facility with the Revolving Credit Facility and the Term Loan; (viii)
the acquisition of a participating note; (ix) consummation of the offering of
10,580,000 Paired Shares; (x) the lease of 61 hotel properties to Wyndham
International; and (xi) the acquisition of 24 hotels, the private placement of
equity securities and the public offering of common stock, which were
consummated by Old Patriot REIT during 1996) had occurred on January 1, 1996.
The pro forma combined balance sheet data of Patriot REIT and Wyndham
International is presented as if the Wyndham Transactions and the CHCI Merger
and certain other transactions, as described above, had occurred as of
September 30, 1997.
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,020,041 $837,571
Income before income tax provision and
minority interests..................... 8,741 38,167
Net income applicable to common
shareholders........................... $ 12,688 $ 29,185
PER SHARE DATA:
Net income per common paired share...... $ 0.12 $ 0.28
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $2,433,525
Total assets............................................... 3,478,366
Total debt................................................. 1,472,911
Minority interests in the Patriot Partnerships............. 264,862
Shareholders' equity....................................... 1,501,291
</TABLE>
(Notes on page S-36)
S-33
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $300,459 $253,779
Income before income tax provision and
minority interests..................... 26,461 40,318
Net income applicable to common
shareholders........................... $ 21,735 $ 34,183
PER SHARE DATA:
Net income per common share............. $ 0.21 $ 0.33
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $990,096 $808,209
Loss before income tax provision and
minority interest...................... (22,765) (732)
Net loss applicable to common
shareholders........................... $ (9,047) $ (4,998)
PER SHARE DATA:
Net loss per common share............... $ (0.09) $ (0.05)
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 102,543 103,117
======== ========
</TABLE>
(Notes on page S-36)
S-34
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except CHC Lease
Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc. and Grand Heritage Leasing,
L.L.C.) and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Patriot
REIT and Patriot Operating Company included elsewhere herein and the
historical financial statements and notes thereto of Patriot REIT, Patriot
Operating Company, Old Patriot REIT and NorthCoast Lessee incorporated by
reference into this Supplement. This information should also be read in
conjunction with the pro forma financial statement and notes thereto of the
Combined Lessees located elsewhere in this Supplement. The pro forma operating
information is presented as if the 16 Patriot REIT hotels leased to the
Lessees (excluding the Park Shore Hotel, and the hotels leased to CHC Lease
Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc., and Grand Heritage Leasing,
L.L.C.) pursuant to Participating Leases had been leased as of January 1,
1996.
<TABLE>
<CAPTION>
PRO FORMA(2)
-------------------------------
NINE MONTHS
ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1996 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue.................................. $72,182 $59,441
Food and beverage............................. 28,499 22,355
Telephone and other hotel revenue............. 5,906 4,852
------- -------
Total revenue................................. 106,587 86,648
Hotel operating expenses...................... 73,837 56,346
Participating Lease payments(3)............... 32,730 27,367
------- -------
Income before Lessee expenses................. 20 2,935
Lessee expenses(4)............................ 2,889 1,835
------- -------
Net income (loss)............................. $(2,869) $ 1,100
======= =======
</TABLE>
(Notes on following page)
S-35
<PAGE>
NOTES TO PATRIOT REIT, WYNDHAM INTERNATIONAL AND COMBINED LESSEES SELECTED PRO
FORMA FINANCIAL INFORMATION AS ADJUSTED FOR THE WYNDHAM TRANSACTIONS (IN
THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot
REIT's and Wyndham International's combined financial position or Patriot
REIT's, Wyndham International's or the Combined Lessees' results of
operations actually would have been if the Wyndham Transactions (and the
Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other
recent transactions) had in fact occurred on such date or at the beginning
of the period presented, or to project the results of operations of
Patriot REIT, Wyndham International or the Combined Lessees for any future
periods.
The pro forma combined financial data assumes stockholders holding shares of
Wyndham Common Stock with an aggregate value of $100,000 elect to receive
cash, and the remaining outstanding shares of Wyndham Common Stock are
exchanged for Paired Shares. If no stockholders holding shares of Wyndham
Common Stock elect to receive cash and all outstanding Wyndham Common Stock
is exchanged for Paired Shares, the resulting combined pro forma net income
of Patriot REIT and Wyndham International would be $19,315 and $34,302 for
the year ended December 31, 1996 and the nine months ended September 30,
1997, respectively. The resulting pro forma net income per paired share
would be $0.18 and $0.32 for the year ended December 31, 1996 and the nine
months ended September 30, 1997, respectively.
Additionally, if the interest rate increases by 0.25%, the resulting
combined pro forma net income of Patriot REIT and Wyndham International,
assuming stockholders holding shares of Wyndham Common Stock with an
aggregate value of $100,000 elect to receive cash, would be $8,862 and
$26,583, or $0.09 and $0.26 per common Paired Share for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively. If all outstanding Wyndham Common Stock is exchanged for
Paired Shares, the resulting pro forma net income would be $15,702 and
$31,859, or $0.15 and $0.30 per common Paired Share for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Wyndham
Transactions (and the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger and certain other recent transactions) had in fact occurred at the
beginning of the period indicated, or to project the results of operations
of the Lessees for any future periods. The Lessees' pro forma financial
data presented does not include the operations of CHC Lease Partners,
which leased 25 hotels, PAH RSI Lessee, which leased eight hotels, Crow
Hotel Lessee, Inc., which leased the Wyndham Garden Hotel--Midtown and the
Wyndham Greenspoint Hotel; and Grand Heritage Leasing, L.L.C., which
leased three hotels. The pro forma financial data assumes that the leases
with Crow Hotel Lessee, Inc. related to the Wyndham Garden Hotel--Midtown
and the Wyndham Greenspoint Hotel will be terminated in connection with
the Merger, and Patriot REIT will lease these hotel properties to Wyndham
International.
(3) Participating lease payments from the Lessees to Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease years.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned
by the Lessees. Pro forma Lessee net income excludes dividends on
approximately 100,000 OP Units of the Patriot Partnerships, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
S-36
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Wyndham International and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Old Patriot REIT, Cal Jockey, Bay Meadows, WHG and Wyndham and the
combined historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Supplement and by the separate and
combined historical financial statements of Patriot REIT and Patriot Operating
Company and the historical financial statements of Wyndham included elsewhere
in this Supplement. This information should also be read in conjunction with
the pro forma financial statements and notes thereto located elsewhere in this
Supplement. The pro forma operating information is presented as if the WHG
Merger and the Wyndham Transactions, the Cal Jockey Merger, the GAH
Acquisition, the CHCI Merger and certain other recent transactions (which
include (i) the sale of substantially all of the Cal Jockey land to an
affiliate of PaineWebber; (ii) the leaseback of the land on which the
Racecourse is situated from the PaineWebber affiliate to Patriot REIT; (iii)
the sublease of the Racecourse land and related improvements from Patriot REIT
to Patriot Operating Company; (iv) the leasing of certain land from Patriot
REIT to Borders, Inc.; (v) the acquisition of 23 hotels by Patriot REIT
(excluding the Park Shore Hotel and the Sheraton City Centre); (vi) the
funding of $103,000 in mortgage notes to affiliates of CHC Lease Partners;
(vii) the replacement of the old line of credit facility with the Revolving
Credit Facility and the Term Loan; (viii) the acquisition of a participating
note; (ix) consummation of the offering of 10,580,000 Paired Shares; (x) the
leasing of 61 hotels to Wyndham International and (xi) the acquisition of 24
hotels, the private placement of equity securities and the public offering of
common stock, which were consummated by Old Patriot REIT during 1996) had
occurred on January 1, 1996. The pro forma combined balance sheet data of
Patriot REIT and Wyndham International is presented as if the WHG Merger, the
Wyndham Transactions, the CHCI Merger and certain other transactions, as
described above, had occurred as of September 30, 1997.
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,090,017 $893,739
Income before income tax provision and
minority interests..................... 12,821 47,431
Net income applicable to common
shareholders........................... $ 10,518 $ 34,698
PER SHARE DATA:
Net income per common paired share...... $ 0.09 $ 0.32
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $2,514,216
Total assets............................................... 3,698,463
Total debt................................................. 1,495,274
Minority interests in the Patriot Partnerships............. 264,862
Shareholders' equity....................................... 1,660,187
</TABLE>
(Note on following page)
S-37
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WHG MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $300,459 $253,779
Income before income tax provision and
minority interests..................... 26,461 40,318
Net income applicable to common
shareholders........................... $ 21,856 $ 34,374
PER SHARE DATA:
Net income per common share............. $ 0.20 $ 0.31
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,060,072 $864,377
Income (loss) before income tax
provision and minority interest........ (18,685) 8,532
Net income (loss) applicable to common
shareholders........................... $ (11,338) $ 324
PER SHARE DATA:
Net income (loss) per common share...... $ (0.11) $ 0.01
========== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 107,547 108,178
========== ========
</TABLE>
NOTE TO PATRIOT REIT AND WYNDHAM INTERNATIONAL SELECTED PRO FORMA FINANCIAL
INFORMATION AS ADJUSTED FOR THE WHG MERGER (IN THOUSANDS, EXCEPT SHARE
AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot
REIT's and Wyndham International's combined financial position or Patriot
REIT's or Wyndham International's results of operations actually would
have been if the WHG Merger (and the Wyndham Transactions, the Cal Jockey
Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions) had in fact occurred on such date or at the beginning of the
period presented, or to project the results of operations of Patriot REIT,
Wyndham International or the Combined Lessees for any future periods.
If the interest rate increases by 0.25%, the resulting combined pro forma
net income of Patriot REIT and Wyndham International would be $13,821 and
$32,082, or $0.12 and $0.30 per common Paired Share for the year ended
December 31, 1996 and the nine months ended September 30, 1997,
respectively.
S-38
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Wyndham International and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Old Patriot REIT, Cal Jockey, Bay Meadows, WHG and Wyndham and the
combined historical financial statements of the Crow Family Hotel Partnerships
incorporated by reference into this Supplement and by the separate and
combined historical financial statements of Patriot REIT and Patriot Operating
Company and the historical financial statements of Wyndham and IHC included
elsewhere in this Supplement. This information should also be read in
conjunction with the pro forma financial statements and notes thereto located
elsewhere in this Supplement. The pro forma operating information is presented
as if the Patriot/IHC Merger, the acquisition of the Buena Vista Palace Hotel
(the "Buena Vista Acquisition"), the WHG Merger, the Wyndham Transactions, the
Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other
recent transactions (which include (i) the sale of substantially all of the
Cal Jockey land to an affiliate of PaineWebber; (ii) the leaseback of the land
on which the Racecourse is situated from the PaineWebber affiliate to Patriot
REIT; (iii) the sublease of the Racecourse land and related improvements from
Patriot REIT to Patriot Operating Company; (iv) the leasing of certain land
from Patriot REIT to Borders, Inc.; (v) the acquisition of 23 hotels by
Patriot REIT (excluding the Park Shore Hotel and the Sheraton City Centre);
(vi) the funding of $103,000 in mortgage notes to affiliates of CHC Lease
Partners; (vii) the replacement of the old line of credit facility with the
Revolving Credit Facility and the Term Loan; (viii) the acquisition of a
participating note; (ix) consummation of the offering of 10,580,000 Paired
Shares; (x) the leasing of 61 hotels to Wyndham International and (xi) the
acquisition of 24 hotels, the private placement of equity securities and the
public offering of common stock, which were consummated by Old Patriot REIT
during 1996) had occurred on January 1, 1996. The pro forma combined balance
sheet data of Patriot REIT and Wyndham International is presented as if the
Patriot/IHC Merger, the Buena Vista Acquisition, and the WHG Merger, the
Wyndham Transactions, the CHCI Merger and certain other transactions, as
described above, had occurred as of September 30, 1997.
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,887,086 $1,530,764
Income (loss) before income tax
provision and minority interests....... (31,125) 34,534
Net income (loss) applicable to common
shareholders........................... $ (40,809) $ 16,352
PER SHARE DATA:
Net income (loss) per common paired
share.................................. $ (0.30) $ 0.11
========== ==========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
========== ==========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------
SEPTEMBER 30, 1997
------------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in real estate and related improvements, net.... $4,560,435
Total assets............................................... 6,173,857
Total debt................................................. 2,828,325
Minority interests in the Patriot Partnerships............. 266,940
Shareholders' equity....................................... 2,647,154
</TABLE>
(Note on following page)
S-39
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $557,429 $472,678
Income (loss) before income tax
provision and minority interests....... (22,750) 23,401
Net income (loss) applicable to common
shareholders........................... $(28,795) $ 15,976
PER SHARE DATA:
Net income (loss) per common share...... $ (0.21) $ 0.11
======== ========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
------------------------------------
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
----------------- ------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue........................... $1,857,141 $1,501,402
Income (loss) before income tax
provision and minority interest........ (14,201) 11,175
Net income (loss) applicable to common
shareholders........................... $ (12,014) $ 376
PER SHARE DATA:
Net income (loss) per common share...... $ (0.09) $ 0.00
========== ==========
Weighted average number of common shares
and common share equivalents
outstanding............................ 139,598 140,229
========== ==========
</TABLE>
NOTE TO PATRIOT REIT AND WYNDHAM INTERNATIONAL SELECTED PRO FORMA FINANCIAL
INFORMATION AS ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot
REIT's and Wyndham International's combined financial position or Patriot
REIT's and Wyndham International's results of operations actually would
have been if the Patriot/IHC Merger and the Buena Vista Acquisition (and
the WHG Merger, the Wyndham Transactions, the Cal Jockey Merger, the GAH
Acquisition, the CHCI Merger and certain other recent transactions) had in
fact occurred on such date or at the beginning of the period presented, or
to project the results of operations of Patriot REIT and Wyndham
International for any future periods.
If the interest rate increases by 0.25%, the resulting combined pro forma
operating results of Patriot REIT and Wyndham International would be net
loss of $45,145 , or $0.32 per common Paired Share for the year ended
December 31, 1996 and net income of $13,031, or $0.09 per common Paired
Share for the nine months ended September 30, 1997, respectively.
S-40
<PAGE>
COMPARATIVE PER SHARE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the combined historical per share data,
unaudited pro forma per share data giving effect to the Merger and the Related
Transactions using the purchase method of accounting and the equivalent
unaudited pro forma combined per share amounts for each of Patriot REIT and
Patriot Operating Company and Wyndham. The pro forma combined data are not
necessarily indicative of actual financial position or future operating
results or that which would have occurred or will occur upon consummation of
the Merger and the Related Transactions.
The information shown below should be read in conjunction with the separate
and combined financial statements and notes thereto of Patriot REIT and
Patriot Operating Company and the consolidated financial statements and notes
thereto of Wyndham included herein and incorporated herein by reference and
the pro forma condensed combined financial statements, including the notes
thereto, which are contained in this Supplement.
Unless otherwise indicated, all references to the number of shares and per
share amounts related to Patriot REIT and Patriot Operating Company for the
year ended December 31, 1996 have been restated to reflect the impact of (i)
the conversion of each share of Old Patriot REIT Common Stock into 0.51895
Paired Shares issued in the Cal Jockey Merger, (ii) the 1.927-for-1 stock
split on the Paired Shares effected in the form of a stock dividend
distributed on July 25, 1997 to shareholders of record on July 15, 1997, and
(iii) the 2-for-1 stock split on Old Patriot REIT Common Stock effected in the
form of a stock dividend distributed on March 18, 1997 to shareholders of
record on March 7, 1997, as applicable.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1997
------------------------------------- --------------------------------------
PRO WYNDHAM PRO WYNDHAM
HISTORICAL FORMA (1) EQUIVALENT (3) HISTORICAL FORMA (2) EQUIVALENT (3)
---------- ----------- -------------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income/(Loss):
Patriot REIT/Patriot Op-
erating Company(4)..... $ 1.06 $ 0.45 $ (0.08) $ 0.54
Wyndham................. 1.20 $ 0.16 0.50 $ 0.38
Patriot REIT/Wyndham In-
ternational(4)......... 0.12 0.28
Cash
Distributions/Dividends:
Patriot REIT/Patriot Op-
erating Company........ $0.9825 N/A $0.8475 N/A
Wyndham................. -- N/A -- N/A
Patriot REIT/Wyndham In-
ternational............ N/A N/A
Book Value per Common
Share(5):
Patriot REIT/Patriot Op-
erating Company........ $ 10.02 $12.47 $ 12.94 $12.43
Wyndham................. 3.50 $20.46 6.40 $20.26
Patriot REIT/Wyndham In-
ternational............ 14.91 14.77
</TABLE>
(Notes on following page)
S-41
<PAGE>
NOTES TO COMPARATIVE PER SHARE DATA (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma combined per share data for Patriot REIT and Patriot
Operating Company for the year ended December 31, 1996 is presented as if
the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain
other recent transactions (which include (i) the sale of substantially all
of the Cal Jockey land to an affiliate of PaineWebber; (ii) the leaseback
of the land on which the Racecourse is situated from the PaineWebber
affiliate to Patriot REIT; (iii) the sublease of the Racecourse land and
related improvements from Patriot REIT to Patriot Operating Company; (iv)
the leasing of certain land from Patriot REIT to Borders, Inc.; (v) the
acquisition of 23 hotels by Patriot REIT (excluding the Park Shore Hotel
and Sheraton City Centre); (vi) the funding of $103,000 in mortgage notes
to affiliates of CHC Lease Partners; (vii) the replacement of the old line
of credit facility with the Revolving Credit Facility and the Term Loan;
(viii) the acquisition of a participating note; (ix) consummation of the
Offering of 10,580,000 Paired Shares; (x) the acquisition of 24 hotels,
the private placement of equity securities and the public offering of
common stock, which were consummated by Old Patriot REIT during 1996) had
occurred as of January 1, 1996; and (xi) the leasing of 61 hotels to
Wyndham International.
The pro forma combined per share data for Patriot REIT and Wyndham
International for the year ended December 31, 1996 is presented as if the
Merger and the Related Transactions and the Crow Assets Acquisition, the Cal
Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions described above had occurred as of January 1, 1996.
(2) The pro forma combined per share data for Patriot REIT and Patriot
Operating Company for the nine months ended September 30, 1997 is
presented as if the Cal Jockey Merger and certain other recent
transactions (described in Note 1) had occurred as of January 1, 1996.
The pro forma combined per share data for Patriot REIT and Wyndham
International for the nine months ended September 30, 1997 is presented as
if the Merger and the Related Transactions and the Crow Assets Acquisition,
the Cal Jockey Merger and certain other recent transactions (described in
Note 1) had occurred as of January 1, 1996.
(3) The equivalent pro forma combined share amounts of Wyndham are calculated
by multiplying pro forma net income per Paired Share, pro forma cash
distributions/dividends per Paired Share and pro forma book value per
Paired Share by a relative value ratio of existing Paired Shares to
Wyndham shares of 0.7289 to 1 (based on the Exchange Ratio of Wyndham
Common Stock to Paired Shares of 1.372 to 1).
(4) The pro forma combined net income per share for Patriot REIT and Patriot
Operating Company for the year ended December 31, 1996 and the nine months
ended September 30, 1997 is based on weighted average Paired Shares and
Paired Share equivalents outstanding of 75,516,367 and 76,090,144,
respectively.
The pro forma combined net income per share for Patriot REIT and Wyndham
International for the year ended December 31, 1996 and the nine months ended
September 30, 1997 is based on weighted average Paired Shares and Paired
Share equivalents outstanding of 102,543,602 and 103,117,379, respectively.
(5) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding. The pro forma book value
per common share of Patriot REIT and Patriot Operating Company is based on
total outstanding Paired Shares (including convertible preferred
securities) of 75,232,150 at December 31, 1996 and September 30, 1997. The
pro forma book value per common share of Patriot REIT and Wyndham
International is based on total outstanding Paired Shares (including
convertible preferred securities) of 101,677,657 at December 31, 1996 and
September 30, 1997.
COMBINED HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES FOR PATRIOT REIT AND
PATRIOT OPERATING COMPANY
The following table sets forth the combined historical consolidated ratios
of earnings to fixed charges for Patriot REIT and Patriot Operating Company
for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED
----------------------- SEPTEMBER 30,
1995 1996 1997
------------- ---------------------------
<S> <C> <C> <C>
Ratio.............................. 80.37x(b) 7.00x 1.04x(a)
</TABLE>
- --------
(a) Combined pre-tax income from continuing operations for the nine months
ended September 30, 1997 includes costs to acquire leaseholds, a non-
recurring expense, in the amount of $43,820,000.
(b) Patriot REIT commenced operations on October 2, 1995.
The ratios of earnings to fixed charges were computed by dividing earnings
by fixed charges. For this purpose, earnings consist of combined pre-tax
income from continuing operations plus fixed charges. Fixed charges consist of
interest expense and the amortization of debt issuance costs. To date, the
Patriot Companies have not issued any Preferred Stock: therefore, the ratios
of earnings to combined fixed charges and Preferred Stock dividend
requirements are the same as the ratios of earnings to fixed charges presented
above.
S-42
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
BACKGROUND
On July 1, 1997, pursuant to the Cal Jockey Merger, Old Patriot REIT merged
with and into Cal Jockey, with Cal Jockey being the surviving legal entity. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to Patriot
American Hospitality, Inc. and Bay Meadows changed its name to Patriot
American Hospitality Operating Company. Patriot REIT's shares of common stock
are paired and trade together with the shares of common stock of Patriot
Operating Company as a single unit pursuant to a stock pairing arrangement.
By operation of the Cal Jockey Merger, each issued and outstanding share of
Old Patriot REIT Common Stock was converted into 0.51895 shares of Patriot
REIT Common Stock and 0.51895 shares of Patriot Operating Company Common Stock
(prior to giving effect to the 1.927-for-1 stock split discussed below), which
shares are paired and transferable only as a single unit. Each paired share of
Cal Jockey and Bay Meadows common stock remained outstanding and represented
the same number of paired shares of Patriot REIT Common Stock and Patriot
Operating Company Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed the Patriot
Operating Company Partnership into which Bay Meadows contributed its assets in
exchange for OP Units of the Patriot Operating Company Partnership, and Cal
Jockey contributed certain of its assets to the Patriot REIT Partnership in
exchange for OP Units of the Patriot REIT Partnership. Subsequent to
completion of the Cal Jockey Merger and the related transactions contemplated
by the Cal Jockey Merger Agreement, substantially all of the operations of
Patriot REIT and Patriot Operating Company have been conducted through the
Patriot Partnerships and their subsidiaries.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Racecourse facilities and related
leasehold improvements owned by Cal Jockey and Bay Meadows are adjusted to
estimated fair market value. The Cal Jockey Merger has been accounted for as a
reverse acquisition whereby Cal Jockey is considered to be the acquired
company for accounting purposes.
On July 10, 1997, the respective Boards of Directors of Patriot REIT and
Patriot Operating Company declared a 1.927-for-1 stock split on its shares of
common stock effected in the form of a stock dividend distributed on July 25,
1997 to shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the pro forma financial
statements to the number of shares, per share amounts, and market prices of
the common stock and options to purchase common stock have been restated to
reflect the impact of the conversion of each share of Old Patriot REIT Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the
1.927-for-1 stock split. In addition, all references in the pro forma
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock related to
periods prior to the 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997 have been restated to reflect the
impact of such stock split.
Patriot REIT leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to either Patriot Operating Company or the Lessee
that is responsible for operating such hotel. The hotels are leased for
periods ranging from one to 12-years pursuant to separate Participating Leases
providing for the payment of the greater of base or participating rent, plus
certain additional charges, as applicable. The Lessees, in turn, have entered
into separate agreements with the Operators to manage the hotels. The Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel were structured without
lessees and are managed directly by an Operator.
S-43
<PAGE>
As of December 4, 1997, 35 of Patriot REIT's hotels are leased to separate
Lessees (excluding the Park Shore Hotel), and 42 hotels are leased to Patriot
Operating Company (excluding the Sheraton City Centre).
BUSINESSES ACQUIRED
Since January 1, 1997, Patriot REIT, through the Patriot REIT Partnership
and its subsidiaries, has invested approximately $730,588 in the acquisition
of 20 hotels and five resort properties with a total of 6,024 guest rooms (the
"Recent Acquisitions"). These acquisitions were financed primarily with funds
drawn on the Revolving Credit Facility (and prior to the Cal Jockey Merger,
the Old Line of Credit) and other mortgage debt, the issuance of 3,204,243 OP
Units valued at approximately $73,662, and the assumption of mortgage debt in
the amount of approximately $34,263. In addition, in connection with certain
other transactions described below (see "Acquisition of Gencom American
Hospitality and Merger with CHC International, Inc."), Patriot REIT, through
the Patriot REIT Partnership and its subsidiaries, has invested approximately
$236,984 in the acquisition of ten additional hotels with a total of 3,119
rooms (the "CHC Hotels").
On July 14, 1997, Patriot REIT sold approximately 174 acres of land in San
Mateo, California, representing substantially all of the land which was owned
by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
for a purchase price of approximately $80,864. These funds were placed in a
restricted trust account in order to facilitate a tax-deferred, like-kind
exchange through the acquisition of suitable hotel properties. During July
1997, three suitable hotels (the Holiday Inn at the San Francisco
International Airport, the Ambassador West Hotel and the Union Station Hotel)
were acquired using a portion of the proceeds from this restricted account.
Patriot REIT retained ownership of the improvements located on the land,
including the Racecourse and its related facilities. Simultaneously with the
consummation of the PaineWebber Land Sale, the PaineWebber affiliate and
Patriot REIT entered into a ground lease covering a portion of the land on
which the Racecourse is situated for a term of seven years. The lease provides
for quarterly rental payments of $750 through March 1998, $813 through March
1999, $875 through March 2000, $1,000 through March 2002 and $1,250 through
July 2004. Additionally, Patriot REIT subleased the Racecourse land and leased
the related improvements to Patriot Operating Company in order to permit
Patriot Operating Company to continue horseracing operations at the Racecourse
through the term of Patriot REIT's lease. The sublease is for a term of seven
years with annual payments based on percentages of revenue generated. In
addition, Patriot REIT has leased certain land adjacent to the Racecourse to
Borders, Inc. (the "Borders Lease") for an initial term of 20 years with a
fixed net annual rent of $279 for years 1 through 10, $362 for years 11
through 15 and $416 for years 16 through 20. In connection with the sale,
Patriot REIT assigned all of its rights and benefits under existing leases,
contracts, permits and entitlements relating to the land sold (excluding the
Borders Lease) to the PaineWebber affiliate, and the PaineWebber affiliate
assumed all of Patriot REIT's development obligations including, but not
limited to, all obligations for on and off-site improvements and all
obligations under existing leases and contracts. The parties have the option
to renew such leases upon their expiration under certain circumstances.
In August 1997, Patriot Operating Company acquired Grand Heritage Hotels,
Inc., a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C., which leased three
hotels from Patriot REIT (the "Grand Heritage Acquisition"). The acquisition
was financed primarily through the issuance of 931,972 Class A preferred OP
Units of the Patriot Operating Company Partnership.
Effective October 1, 1997, Patriot Operating Company, through certain of its
subsidiaries, acquired the members' interest of PAH RSI, L.L.C., a limited
liability company owned and controlled by certain executive officers of the
Patriot Companies ("PAH RSI Lessee") for approximately $143. PAH RSI Lessee
leased eight of Patriot REIT's hotels. As a result of the acquisition, Patriot
Operating Company holds these leasehold interests.
FINANCING TRANSACTIONS
On July 21, 1997, the Patriot Companies entered into the Revolving Credit
Facility with PaineWebber Real Estate, Chase and certain other lenders for a
three-year $700,000 unsecured revolving line of credit. The Patriot
S-44
<PAGE>
Companies are negotiating with PaineWebber Real Estate and Chase to increase
the amount available under the Revolving Credit Facility to $900,000.
Borrowings were made under the Revolving Credit Facility to repay all
outstanding amounts under Old Patriot REIT's secured line of credit with
PaineWebber Real Estate (the "Old Line of Credit"). The Revolving Credit
Facility generally is used for the acquisition of additional properties,
businesses and other assets, for capital expenditures and for general working
capital purposes. In addition, it is expected that the Revolving Credit
Facility will be used to refinance that portion of existing Wyndham
indebtedness that is not refinanced through the Term Loan (see below). The
interest rate for the Revolving Credit Facility ranges from LIBOR plus 1.0% to
2.0% (depending on the Patriot Companies' leverage ratio or the investment
grade rating received from the rating agencies) or the customary alternate
base rate announced from time to time plus 0.0% to 0.5% (depending on the
Patriot Companies' leverage ratio). The weighted average interest rate in
effect for the Revolving Credit Facility for the period ended September 30,
1997 was 7.62% per annum.
Additionally, Patriot REIT has entered into a commitment letter with
PaineWebber Real Estate and Chase for the $500,000 Term Loan. In connection
with the Patriot Companies' negotiations to increase the amount available
under the Revolving Credit Facility, the Term Loan amount has been reduced to
$350,000. It is anticipated that the Term Loan will be unsecured. The Term
Loan will be used primarily to refinance substantially all of the existing
indebtedness of Wyndham and to finance payments to be made in connection with
the Merger and the Related Transactions and the Crow Assets Acquisition. The
Term Loan is expected to have an interest rate per annum equal to the interest
rate incurred on the Revolving Credit Facility.
In June 1997, Patriot REIT loaned approximately $20,500 to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot REIT loaned approximately $25,600
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House
Hotel). Both loans mature in two years, bear interest at a rate per annum
equal to 30-day LIBOR plus 2.75%, and are secured by first priority liens on
the respective hotels. Additionally, Patriot REIT has purchased two additional
loans on which partnerships affiliated with the members of CHC Lease Partners
are borrowers for an aggregate purchase price of $57,000. One of the purchased
loans, in the principal amount of approximately $30,700, matures in December
2000 and bears interest at a rate per annum equal to 8.0% until November 30,
1997, 8.5% from December 1, 1997 until November 30, 1999, and 9.0% from
December 1, 1999 until December 1, 2000. The second purchased loan, in the
principal amount of approximately $24,400, matures on December 31, 1999 and
bears interest at a rate per annum equal to 8.0% until December 31, 1997 and
9.5% from January 1, 1998 until December 31, 1999. Each of the purchased loans
is secured by first priority liens on the respective hotels. The notes contain
certain penalties for early repayment. In connection with such loans, Patriot
REIT has entered into a short-term financing arrangement with an affiliate of
PaineWebber Real Estate (the "PaineWebber Mortgage Financing"), whereby such
affiliate loaned Patriot REIT $103,000 through April 15, 1998 at a rate equal
to the greater of 30-day LIBOR plus 1.75% or the borrowing rate on the
Revolving Credit Facility. This financing is secured by a collateral
assignment of the mortgage loans encumbering the four hotels. In October 1997,
Patriot REIT, through certain of its subsidiaries, acquired 100% of the
ownership interests in the four partnerships that own these hotels (see
"Acquisition of Gencom American Hospitality and Merger with CHC International,
Inc." below). As a result, the note balances and the related interest income
and expense are eliminated in Patriot REIT's consolidated financial
statements.
On November 25, 1997, Patriot REIT, through the Patriot REIT Partnership,
acquired a 92.5% general partner interest in a partnership formed for the
purpose of acquiring the 353-room Sheraton City Centre hotel (the "Sheraton
City Centre Partnership"). A third party (the "Minority Partner") owns the
remaining 7.5% limited partner interest in the Sheraton City Centre
Partnership (the "Minority Interest"). The Patriot REIT Partnership
contributed approximately $36,800 for its general partner interest, financed
primarily with funds drawn on the Revolving Credit Facility. Patriot REIT has
leased the Sheraton City Centre hotel to Patriot Operating Company. Beginning
in November 1999, the Minority Partner may require Patriot REIT Partnership to
purchase the Minority Interest at a price equal to the estimated value (as
calculated in accordance with the
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<PAGE>
provisions of the partnership agreement). In addition, beginning in November
2001, the Patriot REIT Partnership has the option to purchase the Minority
Interest for the greater of $5,500 or the estimated value of the Minority
Interest (as defined in the partnership agreement). The following unaudited
Pro Forma Condensed Combined Statements of Operations do not include the
results of operations of the Sheraton City Centre.
In August 1997, Patriot Operating Company purchased a participating loan
from National Resort Ventures, L.P., a Delaware limited partnership, related
to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 in
cash (the "Participating Note"). The Buena Vista Palace Hotel is owned by a
joint venture (the "Buena Vista Joint Venture") between Equitable Life
Insurance Company ("Equitable"), which owns a 55% interest, and Hotel Venture
Partners, Ltd. ("HVP"), a Florida limited partnership, which owns a 45%
interest. Patriot REIT, through certain of its subsidiaries, has entered into
a Contribution Agreement dated October 7, 1997 to acquire approximately 90% of
HVP's 45% interest in the Buena Vista Joint Venture for approximately $14,000
in cash and units of limited partnership interest in the Patriot REIT
Partnership and the Patriot Operating Company Partnership. Patriot REIT was
also granted an option to acquire HVP's remaining interest in the Buena Vista
Joint Venture. In addition, pursuant to a Purchase and Sale Agreement dated
November 6, 1997, Patriot REIT, through certain of its subsidiaries, agreed to
acquire Equitable's 55% interest in the Buena Vista Joint Venture for
approximately $53,500 in cash. Patriot REIT will also acquire the
Participating Note investment held by Patriot Operating Company for $23,750 in
cash and also agreed to repay outstanding mezzanine debt of approximately
$6,004. Subsequent to acquisition of these joint venture interests, Patriot
REIT, through certain of its subsidiaries, will hold an aggregate 95%
ownership interest (including a 1% general partnership interest) in the Buena
Vista Joint Venture with an option to acquire the remaining 5% interest in
three years. The hotel will remain subject to a ground lease and a first
leasehold mortgage note in the amount of approximately $50,700.
In August 1997, the Patriot Companies completed a public offering (the
"Offering") of 10,580,000 Paired Shares (including 1,380,000 Paired Shares
issued upon exercise of the underwriters' over-allotment option), with net
proceeds (less underwriter discount and expenses) of approximately $240,795.
The net proceeds were primarily used to reduce the outstanding debt under the
Revolving Credit Facility.
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the Patriot Companies sold 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per Paired Share of
$27.6875, or aggregate consideration of $27,688. In addition, pursuant to a
letter agreement dated September 30, 1997, the Patriot Companies sold
1,000,000 Paired Shares to LaSalle Advisors Limited Partnership ("LaSalle"),
as agent for certain clients of LaSalle (the "LaSalle Direct Placement"), at a
purchase price per Paired Share of $27.65, or aggregate consideration of
$27,650.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P., and certain related entities (the "Morgan
Stanley Call"). The exercise price on the Morgan Stanley Call was $25.875 per
pair of OP Units. The Morgan Stanley Call was funded with the proceeds of the
PaineWebber Direct Placement and the LaSalle Direct Placement.
ACQUISITION OF GENCOM AMERICAN HOSPITALITY AND MERGER WITH CHC INTERNATIONAL,
INC.
In September 1997, Patriot REIT, through certain of its subsidiaries,
acquired seven hotels (including an approximate 50% controlling ownership
interest in the Omni Inner Harbor Hotel) and in October 1997, Patriot REIT,
through certain of its subsidiaries, acquired three additional hotels. The ten
CHC Hotels were acquired from entities affiliated with the Gencom and CHCI for
an aggregate purchase price of approximately $236,984. In addition, Patriot
REIT has entered into an agreement whereby Patriot REIT may indirectly acquire
the remaining ownership interest in the Omni Inner Harbor Hotel for
approximately $19,314. The CHC Hotels are leased to and managed by Patriot
Operating Company and its subsidiaries. The purchase of the hotels was
financed with approximately $45,000 of cash drawn on the Revolving Credit
Facility and by issuing 1,703,943 Paired Shares and 2,174,773 paired OP Units
in the Patriot Partnerships in a private placement. Four of the hotels are
encumbered by the mortgage loans, in the aggregate amount of approximately
$103,443 including accrued interest, that Patriot REIT made in connection with
the PaineWebber Mortgage Financing discussed above.
S-46
<PAGE>
In addition, Patriot REIT acquired the leasehold interests related to eight
hotels which were previously leased by CHC Lease Partners and re-leased such
hotels to Patriot Operating Company. Prior to such acquisition, the management
contracts with GAH, an affiliate of CHCI and Gencom, related to the eight
hotels were terminated. The aggregate purchase price of the leasehold
interests was approximately $52,766. Concurrently, Patriot Operating Company
purchased an approximate 50% managing, controlling ownership interest in GAH
from affiliates of Gencom for a purchase price of approximately $13,860. These
transactions were financed with approximately $644 of cash, and by issuing
2,388,932 paired OP Units of the Patriot REIT Partnership and the Patriot
Operating Company Partnership and 476,682 Class C preferred OP Units of
Patriot Operating Company Partnership. In connection with Patriot REIT's
acquisition of the eight leasehold interests from CHC Lease Partners, CHC
Lease Partners was liquidated and its remaining 17 leasehold interests became
leasehold interests of CHCI, the ultimate remaining owner of CHC Lease
Partners at the time of its liquidation. These 17 leasehold interests will be
acquired by Patriot Operating Company if the CHCI Merger is consummated, as
described below.
GAH, directly and through certain of its subsidiaries, owns nine management
contracts related to hotels leased by Patriot Operating Company, 15 third-
party management contracts, and certain other hospitality management assets.
Concurrently with Patriot Operating Company's purchase of its controlling
interest in GAH, Patriot Operating Company also entered into a Hospitality
Advisory, Asset Management and Support Services Agreement with CHCI and GAH
whereby Patriot Operating Company will provide certain hospitality advisory,
asset management and support services to certain CHCI and GAH subsidiaries for
base fees aggregating approximately $750 per month plus a percentage of excess
cash flows of the hotels.
Patriot REIT, Patriot Operating Company and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 for the merger of
the hospitality-related businesses of CHCI with and into Patriot Operating
Company with Patriot Operating Company being the surviving company. Subject to
regulatory approvals, CHCI's gaming operations will be transferred to a new
legal entity prior to the CHCI Merger and such operations will not be a part
of the transaction. It is anticipated that the CHCI Merger will be consummated
in the first or second quarter of 1998, although the precise timing is subject
to certain conditions, including receipt of all necessary regulatory
approvals. As a result of the CHCI Merger, Patriot Operating Company, through
its subsidiaries, will acquire the remaining 50% investment interest in GAH,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot REIT hotels leased by CHC Lease Partners, three management
contracts related to Patriot REIT hotels leased by Patriot Operating Company,
12 third-party management contracts, two third-party lease contracts, the
Grand Bay and Registry Hotels & Resorts proprietary brand names and certain
other hospitality management assets. Patriot Operating Company has also agreed
to provide CHCI with a $7,000 line of credit until such time as the CHCI
Merger is completed. Patriot Operating Company's acquisition of GAH, both the
acquisition of an approximate 50% interest in GAH in September 1997 and the
acquisition of the remaining approximate 50% interest in connection with the
CHCI Merger, is referred to as the "GAH Acquisition" when used in connection
with the presentation of pro forma financial data.
By operation of the CHCI Merger and the transactions related thereto, each
issued and outstanding CHCI Share and certain stock option rights will be
converted into the right to receive shares of Operating Company Series A
Preferred Stock and shares of Operating Company Series B Preferred Stock
(collectively, the Operating Company Series A Preferred Stock and the
Operating Company Series B Preferred Stock are referred to herein as the
"Operating Company Preferred Stock"). The formula for determining the exchange
ratio of CHCI Shares for Operating Company Series A Preferred Stock and
Operating Company Series B Preferred Stock is based on issuing an aggregate of
approximately 4,396,000 shares of Operating Company Preferred Stock (based on
an aggregate purchase value of approximately $102,200 and a market price per
Paired Share of $23.25), subject to reduction if certain specified events
occur and subject to increase representing adjustments for dividends paid on
Paired Shares after September 30, 1997. Generally, the aggregate number of
shares of Operating Company Preferred Stock that each shareholder shall have
the right to receive pursuant to the CHCI Merger shall consist of, to the
extent possible, an equal number of Operating Company Series A Preferred Stock
and Operating Company Series B Preferred Stock.
S-47
<PAGE>
Generally, each share of Operating Company Series A Preferred Stock may be
redeemed for one Paired Share at any time following the one-year anniversary
of the closing of the CHCI Merger. Each share of Operating Company Series B
Preferred Stock may be redeemed for one Paired Share, however, such redemption
is generally restricted until the fifth-year anniversary of the closing of the
CHCI Merger. The value of a Paired Share at the time of redemption (the
"Redemption Value") may, at Patriot Operating Company's option, be paid in
cash. Further, if Patriot Operating Company fails to comply with certain
restrictions, the preferred shares may be redeemed for cash or, at Patriot
Operating Company's option, Paired Shares at the Redemption Value plus a
premium. The dividend rate on the shares of Operating Company Preferred Stock
is equivalent to the dividend rate on the Paired Shares. Dividends on
Operating Company Series B Preferred Stock are subject to increase during the
five years subsequent to the closing of the CHCI Merger if the shares are
transferred by the original holder. If the dividends on the shares of
Operating Company Preferred Stock are not paid when due, dividends will
instead accrue at the rate of 115% per annum on a compounded basis. The shares
of Operating Company Preferred Stock are redeemable at Patriot Operating
Company's option at the Redemption Value, plus a premium in the case of the
original holders thereof and certain permitted transferees.
In connection with the GAH Acquisition, preferred OP Units of the Patriot
Operating Company Partnership with a value of approximately $5,000 have been
held back, and the CHCI Merger equity consideration is subject to reduction in
the amount of approximately $5,000 if the hotels and leaseholds acquired fail
to achieve certain operating targets over the period prior to the closing of
the CHCI Merger.
In addition, on September 30, 2000 and September 30, 2002, Patriot Operating
Company may be obligated to pay the CHCI stockholders, and a subsidiary of
Patriot Operating Company may be obligated to pay a Gencom-related entity,
additional consideration, in each case based upon the delivery and performance
of certain specified assets.
SUMMARY
As of December 2, 1997, Patriot REIT owned interests in 81 hotels and
resorts and held an approximate 86.0% ownership interest in the Patriot REIT
Partnership. Patriot Operating Company held an approximate 84.6% ownership
interest in the Patriot Operating Company Partnership. The unaudited Pro Forma
Financial Statements reflect an approximate 13.8% minority ownership interest
in the Patriot REIT Partnership and a 14.5% minority ownership interest in the
Patriot Operating Company Partnership, which represents the estimated
ownership interest subsequent to consummation of the GAH Acquisition, the CHCI
Merger, the PaineWebber Direct Placement and the LaSalle Direct Placement.
The following unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 and the nine months ended September 30,
1997 of Patriot REIT and Patriot Operating Company are derived from the
individual unaudited Pro Forma Condensed Consolidated Statements of Operations
of Patriot REIT and Patriot Operating Company which are included in this
Supplement. Such pro forma information is based in part upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996;
(iii) the Separate and Combined Statements of Operations of Patriot REIT
and Patriot Operating Company filed with the Patriot Companies' Joint
Quarterly Report on Form 10-Q for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(v) the historical financial statements of the certain hotels and
businesses acquired by Patriot REIT and Patriot Operating Company filed in
the Patriot Companies' Joint Current Reports on Form 8-K dated September
17, 1997, September 30, 1997, as amended, and December 10, 1997; and
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<PAGE>
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Lessees which are located elsewhere in this Supplement.
The following unaudited Pro Forma Condensed Combined Statements of
Operations assume the following transactions (the "Recent Transactions") have
occurred as of January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased the land and
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel and the Sheraton City Centre);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility;
(viii) Patriot Operating Company has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
The pro forma results of operations for the year ended December 31, 1996
assume the 24 hotels acquired during 1996 and the private placement of equity
securities and the public offering of common stock completed by Old Patriot
REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made. The following unaudited Pro
Forma Condensed Combined Statements of Operations are not necessarily
indicative of what the actual results of operations of Patriot REIT and
Patriot Operating Company would have been assuming such transactions had been
completed as of January 1, 1996, nor do they purport to represent the results
of operations for future periods. Further the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
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<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease reve-
nue..................... $213,868 $ -- $(172,119)(A) $ 41,749
Hotel revenue............ -- 572,292 -- 572,292
Racecourse facility and
land lease revenue ..... 5,945 51,946 (5,611)(B) 52,280
Management fee and serv-
ice fee income.......... -- 13,522 -- 13,522
Interest and other in-
come.................... 2,297 10,012 (5,916)(C) 6,393
-------- -------- --------- --------
Total revenue............ 222,110 647,772 (183,646) 686,236
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 241,792 -- 241,792
Racecourse facility oper-
ations.................. -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company and
service department...... -- 11,143 -- 11,143
General and administra-
tive.................... 6,797 71,700 (34)(C) 78,463
Ground lease expense..... 5,693 733 -- 6,426
Repair and maintenance... -- 29,897 -- 29,897
Utilities................ -- 26,843 -- 26,843
Interest expense......... 64,518 1,393 (5,882)(C) 60,029 (D)
Real estate and personal
property taxes and casu-
alty insurance.......... 22,488 398 -- 22,886
Marketing................ -- 51,238 -- 51,238
Management fees.......... -- 9,469 -- 9,469
Depreciation and amorti-
zation.................. 62,723 10,348 -- 73,071
Participating lease pay-
ments................... -- 172,119 (172,119)(A) --
-------- -------- --------- --------
Total expenses........... 162,219 673,424 (183,646) 651,997
-------- -------- --------- --------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provision
and minority interests... 59,891 (25,652) -- 34,239
Equity in earnings of un-
consolidated subsidiar-
ies..................... 7,559 -- -- 7,559
-------- -------- --------- --------
Income (loss) before in-
come tax provision and
minority interests....... 67,450 (25,652) -- 41,798
Income tax provision..... (170) (760) -- (930)
-------- -------- --------- --------
Income (loss) before mi-
nority interests......... 67,280 (26,412) -- 40,868
Minority interest in the
Patriot Partnerships.... (9,032) 3,830 -- (5,202)
Minority interest in con-
solidated subsidiaries.. (1,832) -- -- (1,832)
-------- -------- --------- --------
Net income (loss) applica-
ble to common
shareholders(F).......... $ 56,416 $(22,582) $ -- $ 33,834 (D)
======== ======== ========= ========
Net income (loss) per com-
mon Paired Share(E)...... $ 0.75 $ (0.30) $ 0.45 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot REIT to Patriot Operating Company.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) In connection with the Cal Jockey Merger, Patriot REIT Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Patriot Operating Company Common Stock in connection with the Cal Jockey
Merger) in an amount equal to the number of shares of Patriot REIT Common
Stock that were issued to Old Patriot REIT stockholders in the Cal Jockey
Merger. In addition, Patriot REIT Partnership similarly subscribed for OP
Units in the Patriot Operating Partnership in an amount equal to the
number of Patriot REIT Partnership OP Units that were outstanding
subsequent to the Cal Jockey Merger. The subscription for the shares and
OP Units was funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Patriot
Operating Company. The Subscription Notes accrue interest at a rate of 8%
per annum and mature December 31, 1997. The pro forma adjustments
represent the elimination of $4,712 of interest income and expense related
to the Subscription Notes, the elimination of $1,170 of interest income
and expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
were acquired by Patriot Operating Company, and the elimination of $34 of
other intercompany income and expense items.
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<PAGE>
(D) The pro forma amounts presented assume an average interest rate of 7.183%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $61,604, decrease net income
applicable to common shareholders to $32,477 and decrease net income per
common share to $0.43.
In connection with the closing of the Revolving Credit Facility, deferred
loan costs totaling approximately $11,605, including fees, legal and other
expenses were incurred and amortization expense of approximately $3,868 is
reflected in pro forma interest expense. Amortization of deferred loan costs
is computed using the straight-line method over the 3-year loan term. As a
result of closing the Revolving Credit Facility, deferred loan costs
totaling approximately $2,910 related to the Old Line of Credit were written
off. This amount was reported as an extraordinary item in the Patriot
Companies' results of operations for the nine months ended September 30,
1997.
(E) Pro forma earnings per share is computed based on 75,516 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company Preferred Stock into Paired Shares. In addition, the net
income per common Paired Share and the weighted average number of common
Paired Shares and common Paired Share equivalents have been adjusted for
(i) the March 1997 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend, (ii) the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and (iii) the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 Earnings Per Share ("Statement
128"). Statement 128 specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.45 per common Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(F) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the year ended December 31, 1996 is to reflect the expected continuing
impact of the above-described transactions on the Patriot Companies, the
adjustment to write off the cost of acquiring these leases has been
excluded. This expense will be recorded as an operating expense on Patriot
REIT's and Patriot Operating Company's respective statements of
operations.
S-51
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease reve-
nue..................... $172,682 $ -- $(138,309)(A) $ 34,373
Hotel revenue............ -- 462,484 -- 462,484
Racecourse facility and
land lease revenue...... 3,504 33,399 (3,246)(B) 33,657
Management fee and serv-
ice fee income.......... -- 14,701 -- 14,701
Interest and other in-
come.................... 4,043 6,374 (2,306)(C) 8,111
-------- -------- --------- --------
Total revenue............ 180,229 516,958 (143,861) 553,326
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 187,784 -- 187,784
Racecourse facility oper-
ations.................. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company and
service department...... -- 12,568 -- 12,568
General and administra-
tive.................... 6,937 54,225 (24)(C) 61,138
Ground lease expense..... 5,535 523 -- 6,058
Repair and maintenance... -- 24,230 -- 24,230
Utilities................ -- 20,341 -- 20,341
Interest expense......... 48,329 936 (2,282)(C) 46,983 (D)
Real estate and personal
property taxes and casu-
alty insurance.......... 17,812 290 -- 18,102
Marketing................ -- 41,734 -- 41,734
Management fees.......... -- 9,657 -- 9,657
Depreciation and amorti-
zation.................. 47,565 5,449 -- 53,014
Participating lease pay-
ments................... -- 138,309 (138,309)(A) --
-------- -------- --------- --------
Total expenses........... 126,178 526,160 (143,861) 508,477
-------- -------- --------- --------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provision
and minority interests... 54,051 (9,202) -- 44,849
Equity in earnings of un-
consolidated subsidiar-
ies..................... 4,488 -- -- 4,488
-------- -------- --------- --------
Income (loss) before in-
come tax provision and
minority interests....... 58,539 (9,202) -- 49,337
Income tax (provision)
benefit................. (125) -- -- (125)
-------- -------- --------- --------
Income (loss) before mi-
nority interests......... 58,414 (9,202) -- 49,212
Minority interest in the
Patriot Partnerships.... (7,803) 1,334 -- (6,469)
Minority interest in con-
solidated subsidiaries.. (1,869) -- -- (1,869)
-------- -------- --------- --------
Net income (loss) applica-
ble to common
shareholders(F).......... $ 48,742 $ (7,868) $ -- $ 40,874 (D)
======== ======== ========= ========
Net income (loss) per com-
mon Paired Share(E)...... $ 0.64 $ (0.10) $ 0.54 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot REIT to Patriot Operating Company.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) The pro forma adjustments represent the elimination of $1,450 of interest
income and expense related to the Subscription Notes issued to Patriot
Operating Company in connection with the subscription for shares of
Patriot Operating Company Common Stock and Patriot Operating Partnership
OP Units issued in connection with the Cal Jockey Merger, the elimination
of $832 of interest income and expense related to a note receivable issued
to Old Patriot REIT in connection with the sale of certain assets to PAH
RSI Lessee, which assets were acquired by Patriot Operating Company, and
the elimination of $24 of other intercompany income and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.303%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $48,159 and decrease net
income applicable to common shareholders to $39,860. Net income per common
share would be $0.53. In connection with the closing of the Revolving
Credit Facility, deferred loan costs totaling approximately $11,605,
including fees, legal and other expenses were incurred and amortization
expense of approximately $2,901 is reflected in pro forma interest
expense.
S-52
<PAGE>
Amortization of deferred loan costs is computed using the straight-line
method over the 3-year loan term. As a result of closing the Revolving
Credit Facility, deferred loan costs totaling approximately $2,910 related
to the Old Line of Credit were written off. This amount was reported as an
extraordinary item in the Patriot Companies' historical results of
operations for the nine months ended September 30, 1997 and has been
eliminated from operating results for pro forma presentation purposes.
(E) Pro forma earnings per share is computed based on 76,090 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company Preferred Stock into Paired Shares. In addition, the net
income per common Paired Share and the weighted average number of common
Paired Shares and common Paired Share equivalents have been adjusted to
reflect the impact of the 1.927-for-1 stock split effected in the form of
a stock dividend.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.58 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
(F) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the nine months ended September 30, 1997 is to reflect the expected
continuing impact of the above-described transactions on the Patriot
Companies, the adjustment to write off the cost of acquiring these leases
has been excluded. This expense will be recorded as an operating expense
on Patriot REIT's and Patriot Operating Company's respective statements of
operations.
S-53
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet assumes
the following transactions have occurred as of September 30, 1997:
(i) Patriot REIT has acquired the three CHC Hotels and The Buttes (which
were acquired subsequent to September 30, 1997) and has acquired the
remaining approximate 50% interest in the Omni Inner Harbor Hotel and
leased such hotels to Patriot Operating Company;
(ii) Patriot Operating Company has acquired the members' interests in PAH
RSI Lessee;
(iii) Patriot Operating Company has completed the GAH Acquisition; and
(iv) The CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Condensed Combined Balance Sheet is
derived from Patriot REIT's and Patriot Operating Company's Combined Balance
Sheet as of September 30, 1997 and should be read in conjunction with the
financial statements filed with the Patriot Companies' Joint Quarterly Report
on Form 10-Q for the nine months ended September 30, 1997.
The following Pro Forma Condensed Combined Balance Sheet is not necessarily
indicative of what the actual financial position would have been assuming such
transactions had been completed as of September 30, 1997, nor does it purport
to represent the future financial position of Patriot REIT and Patriot
Operating Company.
S-54
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT REIT
AND PATRIOT
OPERATING
COMPANY
COMBINED OTHER CHC HOTELS CHCI PRO
HISTORICAL ACQUISITIONS ACQUISITION MERGER FORMA
(A) (B) (C) (D) TOTAL
------------ ------------ ----------- -------- ----------
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements............ $ 1,477,512 $63,755 $116,016 $ -- $1,657,283
Mortgage notes and other
receivables from
unconsolidated
subsidiaries............ 74,053 -- -- -- 74,053
Other notes and
receivables............. 98,538 -- (82,625)(E) -- 15,913
Management contracts..... 22,453 -- -- 22,911 (F) 45,364
Trade names.............. 2,500 -- -- 5,000 (F) 7,500
Investment in
unconsolidated
subsidiaries............ 12,061 -- -- -- 12,061
Cash and cash
equivalents............. 21,515 -- -- -- 21,515
Restricted cash (G)...... 38,196 -- -- 38,196
Accounts receivable...... 38,540 -- -- -- 38,540
Goodwill................. 120,839 -- -- 7,269 (H) 128,108
Deferred expenses, net... 16,626 -- -- -- 16,626
Deferred acquisition
costs................... 46,036 -- (6,066) -- 39,970
Prepaid expenses and
other assets............ 10,538 (1,002) 1,393 394 11,323
Deferred income taxes.... 700 -- -- -- 700
----------- ------- -------- -------- ----------
Total assets............ $ 1,980,107 $62,753 $ 28,718 $ 35,574 $2,107,152
=========== ======= ======== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a line
of credit facility and
mortgage notes.......... $ 727,177 $62,753 $ -- $ -- $ 789,930
Accounts payable and
accrued expenses........ 48,561 -- 1,816 (I) -- 50,377
Dividends and
distributions payable... 21,727 -- -- -- 21,727
Sales taxes payable...... 2,968 -- -- -- 2,968
Deposits................. 2,037 -- -- -- 2,037
Deferred income tax
liability............... 4,846 -- -- -- 4,846
Due to unconsolidated
subsidiaries............ 5,904 -- -- -- 5,904
Minority interest in the
Patriot Partnerships.... 257,274 -- 7,588(J) -- 264,862
Minority interest in
consolidated
subsidiaries............ 29,284 -- -- -- 29,284
Shareholders' equity:
Preferred stock......... -- -- -- 44 (L) 44
Common stock............ 1,360 -- 17 (K) -- 1,377
Paid-in capital......... 941,674 -- 19,297 (K) 88,296 (L) 1,049,267
Unearned stock
compensation, net...... (15,075) -- -- -- (15,075)
Retained earnings....... (47,630) -- -- (52,766)(L) (100,396)
----------- ------- -------- -------- ----------
Total shareholders'
equity................. 880,329 -- 19,314 35,574 935,217
----------- ------- -------- -------- ----------
Total liabilities and
shareholders' equity... $ 1,980,107 $62,753 $ 28,718 $ 35,574 $2,107,152
=========== ======= ======== ======== ==========
</TABLE>
See notes on following page.
S-55
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY NOTES TO PRO FORMA CONDENSED
COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997:
(A) Represents the historical combined financial position of Patriot REIT and
Patriot Operating Company as of September 30, 1997.
(B) Represents adjustments to the Patriot Companies' pro forma financial
position assuming Patriot REIT had acquired The Buttes resort as of
September 30, 1997.
(C) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the three CHC Hotels purchased in October 1997 and the
remaining approximate 50% ownership interest in the Omni Inner Harbor
Hotel had been acquired as of September 30, 1997.
(D) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the CHCI Merger had been consummated as of September 30,
1997.
(E) Represents the elimination of the principal balance of the mortgage notes
held by Patriot REIT encumbering three of the CHC Hotels.
(F) Represents the estimated value of the management contracts and trade names
acquired.
(G) The restricted cash balance represents the cash proceeds from the
PaineWebber Land Sale (in the initial amount of $80,864) that were placed
in a restricted trust account in order to facilitate a tax-deferred, like-
kind exchange through the acquisition of suitable hotel properties. In
order to qualify as a tax-deferred exchange, suitable properties must be
located and exchanged and the exchange must be effectuated within a
relatively short time period allowed by Internal Revenue Service
regulations. Management believes that the three hotel properties that have
been purchased thus far with PaineWebber Land Sale proceeds are suitable
hotel properties that qualify as a tax-deferred, like-kind exchange.
(H) Represents the purchase consideration in excess of the fair market value
of the net assets.
(I) Represents adjustment for accounts payable and accrued expenses assumed or
incurred in connection with the acquisition of hotel properties.
(J) Represents adjustments to reflect the issuance of 326,348 OP Units of the
Patriot Partnerships in connection with the acquisition of three of the
CHC Hotels.
(K) Represents adjustments to reflect the issuance of 830,713 Paired Shares in
connection with the acquisition of the remaining approximate 50% interest
in the Omni Inner Harbor Hotel.
(L) Represents the following adjustments to Shareholders' Equity:
<TABLE>
<CAPTION>
PREFERRED PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------- --------
<S> <C> <C> <C>
Pursuant to issuance of a total of
approximately 4,395,700 shares of Series A
Preferred Stock and Series B Preferred
Stock of Patriot Operating Company in
connection with the CHCI Merger............ $ 44 $88,296 $ --
Write-off the estimated cost to acquire 17
Participating Leases related to hotels
leased by Patriot REIT to CHC Lease
Partners and related
transactions............................... -- -- (52,766)
---- ------- --------
$ 44 $88,296 $(52,766)
==== ======= ========
</TABLE>
In connection with the CHCI Merger, Patriot Operating Company will acquire
the remaining 17 Participating Leases held by CHC Lease Partners, issuing a
combination of Operating Company Series A Preferred Stock and Operating
Company Series B Preferred Stock in connection with the transaction. The
cost of acquiring these leases will be recorded as an operating expense in
Patriot Operating Company's results of operations. However, because the
intent of the pro forma financial statements is to reflect, among other
things, the expected continuing impact of the CHCI Merger on Patriot
Operating Company, this adjustment has been excluded from the pro forma
statements of operations and has been reflected as an adjustment to retained
earnings for pro forma presentation purposes.
S-56
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OLD PATRIOT
REIT CAL JOCKEY RECENT CHC HOTELS
HISTORICAL HISTORICAL TRANSACTIONS ACQUISITION OTHER PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $ -- $98,428 (E) $39,702(E) $ (155) $213,868
Rental of Racecourse
facility and land..... -- 4,918 1,027 (F) -- -- 5,945
Interest and other in-
come.................. 600 494 1,203 (G) -- -- 2,297
------- ------- ------- ------- ------- --------
Total revenue.......... 76,493 5,412 100,658 39,702 (155) 222,110
------- ------- ------- ------- ------- --------
Expenses:
Ground lease expense... 1,075 -- 4,238 (H) 380 -- 5,693
General and administra-
tive.................. 4,500 5,696 (3,399)(I) -- -- 6,797
Interest expense....... 7,380 -- 46,372 (J) 7,753(J) 3,013 (J) 64,518 (R)
Real estate and
personal property
taxes and casualty
insurance............. 7,150 -- 10,121 (K) 5,217(K) -- 22,488
Depreciation and amor-
tization.............. 17,420 932 32,894 (L) 11,477(L) -- 62,723
------- ------- ------- ------- ------- --------
Total expenses......... 37,525 6,628 90,226 24,827 3,013 162,219
------- ------- ------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 38,968 (1,216) 10,432 14,875 (3,168) 59,891
Equity in earnings of
unconsolidated
subsidiaries........... 5,845 -- 1,714 (M) -- -- 7,559
------- ------- ------- ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 44,813 (1,216) 12,146 14,875 (3,168) 67,450
Income tax provision.... -- -- -- -- (170)(N) (170)
------- ------- ------- ------- ------- --------
Income (loss) before
minority interests..... 44,813 (1,216) 12,146 14,875 (3,338) 67,280
Minority interest in
Patriot REIT
Partnership........... (6,767) -- 405 (O) -- (2,670)(O) (9,032)
Minority interest in
consolidated
subsidiaries.......... (55) -- (1,777)(P) -- -- (1,832)
------- ------- ------- ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $37,991 $(1,216) $10,774 $14,875 $(6,008) $ 56,416 (R)
======= ======= ======= ======= ======= ========
Net income (loss) per
common share (Q)....... $ 1.06 $ (0.11) $ 0.75 (R)
======= ======= ========
</TABLE>
See notes on following page.
S-57
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996:
(A) Represents Old Patriot REIT's historical results of operations for the
year ended December 31, 1996.
(B) Represents the historical results of operations of Cal Jockey for the
year ended December 31, 1996.
(C) Represents adjustment to Patriot REIT's results of operations assuming
(i) the Cal Jockey Merger and the related transactions have been
consummated; (ii) the PaineWebber Land Sale has been consummated, the
PaineWebber affiliate has leased the Racecourse land to Patriot REIT and
Patriot REIT has subleased this land to Patriot Operating Company; (iii)
Patriot REIT has leased certain land to Borders, Inc.; (iv) Patriot REIT
has completed the Recent Acquisitions (excluding the Park Shore Hotel and
the Sheraton City Centre); (v) the mortgage notes to affiliates of CHC
Lease Partners have been funded; (vi) Patriot REIT has replaced the Old
Line of Credit with the Revolving Credit Facility and the Term Loan;
(vii) the Offering has been completed; and (viii) the 24 hotels acquired
by Patriot REIT, the private placement of equity securities and the
public offering of common stock completed by Old Patriot REIT during 1996
had occurred as of January 1, 1996.
(D) Represents adjustment to Patriot REIT's results of operations assuming
the CHC Hotels had been acquired as of January 1, 1996.
(E) Represents adjustments to participating lease revenue assuming the 77
hotels owned by Patriot REIT and its subsidiaries (excluding the Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased
to Lessees and excluding the Park Shore Hotel and the Sheraton City
Centre) had been leased to the Lessees or Patriot Operating Company as of
January 1, 1996.
(F) Represents adjustments to Racecourse facility rental revenue as a result
of (i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and the PaineWebber Land Sale and (ii) rental income related to the
Borders Lease.
(G) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees.................................................. $ 1,170
Related to the $500 mortgage note receivable issued to the Pa-
triot REIT Partnership by NorthCoast Lessee................... 48
Related to interest earned from notes receivable from an uncon-
solidated subsidiary.......................................... 21
Related to the elimination of interest earned on the $2,900
note receivable issued to Old Patriot REIT by Cal Jockey in
connection with the Cal Jockey Merger......................... (36)
-------
$ 1,203
=======
</TABLE>
(H) Represents pro forma ground lease payments pursuant to the ground lease
agreement with an affiliate of PaineWebber of $3,964 and pro forma ground
lease payments to be made with respect to certain of the hotels of $274.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Related to elimination of administrative salaries and other ex-
penses not expected to be incurred by Patriot REIT............. $ (568)
Related to elimination of non-recurring legal fees.............. (1,344)
Related to elimination of Cal Jockey Merger related costs....... (3,284)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public com-
pany and the continued growth of Patriot REIT.................. 150
Related to the annual amortization of unearned stock compensa-
tion computed on a straight-line basis over the 3 to 5-year
vesting periods................................................ 1,647
-------
$(3,399)
=======
</TABLE>
(J) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense...................................... $ 7,380
Interest expense related to 47 hotels acquired by Patriot REIT
since January 1, 1996 (excluding the Park Shore Hotel, the Sher-
aton City Centre and the CHC Hotels)............................ 37,569
Interest expense related to the Subscription Notes payable to Pa-
triot Operating Company......................................... 4,712
Interest expense related to amortization of deferred loan costs
(including $3,868 of amortization related to costs associated
with the Revolving Credit Facility)............................. 3,998
Interest expense related to amortization of capitalized inter-
est............................................................. 93
Interest expense related to four of the CHC Hotels encumbered by
mortgage loans held by Patriot REIT............................. 7,753
Interest expense related to the acquisition of the 10 CHC Ho-
tels............................................................ 3,013
-------
$64,518
=======
</TABLE>
(K) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the 47 hotels acquired since
January 1, 1996 (except for the Park Shore Hotel and the Sheraton City
Centre) and the 10 CHC Hotels.
S-58
<PAGE>
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to 47 hotels acquired by Patriot REIT since
January 1, 1996 (excluding the Park Shore Hotel, the Sheraton
City Centre and the CHC Hotels)................................ $30,603
Reduction of depreciation expense related to the Racecourse fa-
cility......................................................... (93)
Amortization of goodwill resulting from the adjustment for pur-
chase method of accounting whereby the Racecourse facility and
retained leasehold improvements owned by Cal Jockey are ad-
justed to estimated fair market value.......................... 2,384
-------
$32,894
=======
Depreciation related to the CHC Hotels.......................... $11,477
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements,
20 years for the Racecourse facility and 5 to 7 years for furniture,
fixtures and equipment ("F, F & E"). These estimated useful lives are based
on management's knowledge of the properties and the industry in general.
Amortization of goodwill is computed using the straight-line method over a
40 year estimated useful life. Because the paired share structure is
"grandfathered" under the Code, management believes the life of the paired
share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets.
(M) Represents equity in income of PAH WindWatch, L.L.C. and PAH Boulders,
Inc. acquired in September 1996 and January 1997, respectively.
(N) Represents an adjustment for estimated state income tax liabilities.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 13.8%.
(P) Represents the minority interest related to the partnerships with an
affiliate of Doubletree Hotels Corporation and the limited liability
companies which own certain other hotels assuming such entities had been
formed and the 15 hotels owned by such entities had been acquired at
January 1, 1996.
(Q) Pro forma earnings per share is computed based on 75,516 weighted average
common shares and common share equivalents outstanding for the period.
The number of shares used for the calculation includes adjustments to
reflect the impact of the conversion of shares of Patriot Operating
Company Preferred Stock into Paired Shares. In addition, the net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for (i) the March 1997 2-for-
1 stock split on Old Patriot REIT Common Stock effected in the form of a
stock dividend, (ii) the conversion of each share of Old Patriot REIT
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger,
and (iii) the July 1997 1.927-for-1 stock split effected in the form of a
stock dividend, as applicable. Historical basis earnings per share is
computed based on 35,938 and 11,106 weighted average common shares and
common share equivalents outstanding for Old Patriot REIT and Cal Jockey,
respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.75 per common share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(R) If the interest rate on the Revolving Credit Facility increased by 0.25%,
interest expense would increase to approximately $66,093, net income
would decrease to $55,059 and net income per common share would decrease
to $0.73.
S-59
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT RECENT CHC HOTELS
HISTORICAL TRANSACTIONS ACQUISITION PRO FORMA
(A) (B) (C) TOTAL
---------- ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $117,770 $29,280 (D) $25,632 (D) $172,682
Rental of Racecourse
facility and land..... 1,323 2,181 (E) -- 3,504
Interest and other in-
come.................. 4,215 (172)(F) -- 4,043
-------- ------- ------- --------
Total revenue.......... 123,308 31,289 25,632 180,229
-------- ------- ------- --------
Expenses:
Ground lease expense... 1,993 3,340 (G) 202 5,535
General and administra-
tive.................. 7,582 (645)(H) -- 6,937
Interest expense....... 31,977 11,633 (I) 4,719 (I) 48,329 (R)
Real estate and per-
sonal property taxes
and casualty insur-
ance.................. 11,219 3,276 (J) 3,317 (J) 17,812
Cost of acquiring
leaseholds............ 43,820 (43,820)(K) -- --
Depreciation and amor-
tization.............. 30,656 10,391 (L) 6,518 (L) 47,565
-------- ------- ------- --------
Total expenses......... 127,247 (15,825) 14,756 126,178
-------- ------- ------- --------
Income (loss) before eq-
uity in earnings of un-
consolidated subsidiar-
ies, income tax provi-
sion, minority inter-
ests and extraordinary
item................... (3,939) 47,114 10,876 54,051
Equity in earnings of
unconsolidated subsid-
iaries................ 4,488 -- -- 4,488
-------- ------- ------- --------
Income (loss) before in-
come tax provision, mi-
nority interests and
extraordinary item..... 549 47,114 10,876 58,539
Income tax provision... -- (125)(M) -- (125)
-------- ------- ------- --------
Income (loss) before mi-
nority interests and
extraordinary item..... 549 46,989 10,876 58,414
Minority interest in
Patriot REIT Partner-
ship.................. (1,194) (4,195)(N) (2,414)(N) (7,803)
Minority interest in
consolidated subsidi-
aries................. (1,368) (501)(O) -- (1,869)
-------- ------- ------- --------
Income (loss) before ex-
traordinary item....... (2,013) 42,293 8,462 48,742
Extraordinary loss from
early extinguishment
of debt, net of
minority interest..... (2,534) 2,534 (P) -- --
-------- ------- ------- --------
Net income (loss) appli-
cable to common share-
holders................ $ (4,547) $44,827 $ 8,462 $ 48,742 (R)
======== ======= ======= ========
Net income (loss) per
common share:
Income (loss) before
extraordinary item.... $ (0.04) $ 0.64
Extraordinary loss..... (0.05) --
-------- --------
Net income (loss) per
common share (Q)....... $ (0.09) $ 0.64 (R)
======== ========
</TABLE>
See notes on following page.
S-60
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
(A) Represents Patriot REIT's historical results of operations for the nine
months ended September 30, 1997.
(B) Represents adjustments to Patriot REIT's results of operations assuming (i)
the Cal Jockey Merger and the related transactions have been consummated;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased the Racecourse land to Patriot REIT and Patriot REIT
has subleased this land to Patriot Operating Company; (iii) Patriot REIT has
leased certain land to Borders, Inc.; (iv) Patriot REIT has completed the
Recent Acquisitions (excluding the Park Shore Hotel and the Sheraton City
Centre); (v) the mortgage notes to affiliates of CHC Lease Partners have
been funded; (vi) Patriot REIT has replaced the Old Line of Credit with the
Revolving Credit Facility and the Term Loan; and (vii) the Offering has been
completed as of January 1, 1996.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the CHC Hotels had been acquired as of January 1, 1996.
(D) Represents adjustments to participating lease revenue assuming the 77 hotels
owned by Patriot REIT and its subsidiaries (excluding the Crowne Plaza
Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased to
Lessees and excluding the Park Shore Hotel and the Sheraton City Centre) had
been leased to the Lessees or Patriot Operating Company as of January 1,
1996.
(E) Represents adjustments to Racecourse facility rental revenue including
adjustments as a result of (i) the new lease agreement between Patriot REIT
and Patriot Operating Company subsequent to the Cal Jockey Merger and the
related transactions and the PaineWebber Land Sale and (ii) rental income
related to the Borders Lease.
(F) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees.................................................. $ 46
Cal Jockey historical interest income prior to the Cal Jockey
Merger........................................................ 1,715
Eliminate interest earned on the mortgage notes receivable from
affiliates of CHC Lease Partners.............................. (1,869)
Related to interest earned on other notes receivable .......... (64)
--------
$ (172)
========
</TABLE>
(G) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber.
(H) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Cal Jockey historical general and administrative expense for
the six month period prior to the Cal Jockey Merger........... $ 2,657
Elimination of non-recurring legal fees and Cal Jockey Merger
related costs................................................. (2,092)
Adjustment to the amortization of unearned stock compensation
computed on the straight-line method over the 3 to 5-year
vesting periods (primarily to allocate a portion of the costs
to Patriot Operating Company)................................. (1,210)
--------
$ (645)
========
</TABLE>
(I) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense...................................... $31,977
Interest expense related to the hotels acquired by Patriot REIT
since January 1, 1997 (excluding the Park Shore Hotel, the Sher-
aton City Centre and the CHC Hotels)............................ 7,115
Interest expense related to the Subscription Notes payable to Pa-
triot Operating Company......................................... 1,450
Interest expense related to amortization of deferred loan costs
(including $2,901 of amortization related to costs associated
with the Revolving Credit Facility)............................. 2,998
Interest expense related to amortization of capitalized inter-
est............................................................. 70
Interest expense related to three CHC Hotels encumbered by mort-
gage loans held by Patriot REIT acquired subsequent to September
30, 1997........................................................ 4,719
-------
$48,329
=======
</TABLE>
(J) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the hotels acquired since January
1, 1997 (except for the Park Shore Hotel and the Sheraton City Centre).
(K) Represents elimination of the cost of acquiring seven leaseholds related
to Participating Lease agreements for seven hotels leased by CHC Lease
Partners recorded as an operating expense in Patriot REIT's historical
results of operations. Because the intent of the pro forma financial
statements is to reflect the expected continuing impact of certain
transactions on the Patriot Companies, this non-recurring expense has been
excluded from the pro forma statements of operations.
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to hotels acquired by Patriot REIT from
January 1, 1997 through September 30, 1997 (excluding the Park
Shore Hotel and the Sheraton City Centre)..................... $ 9,536
Reduction of depreciation expense related to the Racecourse
facility...................................................... (240)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value....................... 1,095
-------
$10,391
=======
Depreciation related to the CHC Hotels......................... $ 6,518
=======
</TABLE>
S-61
<PAGE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements, 20 years for the Racecourse facility and 5 to 7 years for F,
F & E. These estimated useful lives are based on management's knowledge of
the properties and the industry in general. Amortization of goodwill is
computed using the straight-line method over a 40 year estimated useful
life. Because the paired share structure is "grandfathered" under the Code,
management believes the life of the paired share structure is perpetual.
Under generally accepted accounting principles, however, the maximum
amortization period is 40 years for intangible assets.
(M) Represents an adjustment for estimated state income tax liabilities.
(N) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 13.8%.
(O) Represents adjustments to the minority interest related to the
partnerships with an affiliate of Doubletree Hotels Corporation and the
limited liability companies which own certain other hotels assuming such
entities had been formed and the 15 hotels owned by such entities had been
acquired as of January 1, 1996.
(P) Represents elimination of extraordinary loss from the early extinguishment
of debt. Patriot REIT recognized the loss as a result of the write-off of
unamortized deferred loan costs related to the Old Line of Credit when it
was replaced with the Revolving Credit Facility. Because the intent of the
pro forma financial statements is to reflect the expected continuing
impact of certain transactions on the Patriot Companies, this non-
recurring expense has been excluded from the pro forma statements of
operations.
(Q) Pro forma earnings per share is computed based on 76,090 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend, as applicable. Historical basis
earnings per share is computed based on 51,104 weighted average common
shares and common share equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.69 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
(R) If the interest rate on the Revolving Credit Facility increased by 0.25%,
interest expense would increase to approximately $49,505, net income would
decrease to $47,728 and net income per common share would decrease to
$0.63.
S-62
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BAY CHC HOTELS CHCI
MEADOWS RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $145,801 $187,365 $ -- $ 5,282 $ -- $338,448
Other hotel revenues... -- 132,243 97,250 -- 4,351 -- 233,844
Racecourse facility
revenue............... 51,946 -- -- -- -- -- 51,946
Management fee and
service fee income.... -- 3,165 -- 7,270 9,032 (5,945)(F) 13,522
Interest and other in-
come.................. 1,526 7,757 (G) -- 14 715 -- 10,012
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 53,472 288,966 284,615 7,284 19,380 (5,945) 647,772
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--ho-
tel operations........ -- 124,924 112,873 -- 3,995 -- 241,792
Racecourse facility op-
erations.............. 45,658 693 (H) -- -- -- -- 46,351
Management company and
service department
operations............ -- 1,595 -- 4,882 4,666 -- 11,143
General and administra-
tive.................. 4,381 28,264 (I) 28,568 (J) 1,056(J) 9,431 (J) -- 71,700
Ground lease expense... -- 733 -- -- -- -- 733
Repair and mainte-
nance................. -- 16,777 13,120 -- -- -- 29,897
Utilities.............. -- 12,676 14,167 -- -- -- 26,843
Marketing.............. 1,436 22,717 27,085 -- -- -- 51,238
Management fees........ -- 8,743 6,671 -- -- (5,945)(F) 9,469
Depreciation and amor-
tization.............. 754 1,591 (K) -- 112 853 7,038 (K) 10,348
Participating lease
payments.............. -- 78,240 (L) 93,879 (L) -- -- -- 172,119
Interest expense....... 130 1,240 -- 23 3,304 (3,304)(M) 1,393
Real estate and per-
sonal property taxes
and casualty insur-
ance.................. 398 -- -- -- -- -- 398
------- -------- -------- ------ ------- ------- --------
Total expenses......... 52,757 298,193 296,363 6,073 22,249 (2,211) 673,424
------- -------- -------- ------ ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 715 (9,227) (11,748) 1,211 (2,869) (3,734) (25,652)
Income tax provision... (260) -- -- -- (92)(N) (408)(N) (760)
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... 455 (9,227) (11,748) 1,211 (2,961) (4,142) (26,412)
Minority interest in
Patriot Operating Com-
pany Partnership...... -- 1,123 (O) -- -- -- 2,707 (O) 3,830
------- -------- -------- ------ ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $ 455 $ (8,104) $(11,748) $1,211 $(2,961) $(1,435) $(22,582)
======= ======== ======== ====== ======= ======= ========
Net income (loss) per
common
share (P).............. $ 0.04 $ (0.30)
======= ========
</TABLE>
See notes on following page.
S-63
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996:
(A) Represents the historical results of operations of Patriot Operating
Company (formerly known as Bay Meadows) for the year ended December 31,
1996.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 24 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 11 of the Recent Acquisitions (excluding the Sheraton City
Centre), the eight hotels previously leased to PAH RSI Lessee, the three
hotels previously leased to Grand Heritage Leasing, L.L.C., the Doubletree
Hotel at Allen Center, the Doubletree Hotel in Tulsa, Oklahoma and The
Buttes.
(C) Represents the combined results of operations for the year ended December
31, 1996 of the 10 CHC Hotels and 25 hotels leased by CHC Lease Partners
assuming that such hotels were leased to Patriot Operating Company as of
January 1, 1996.
(D) Represents the results of operations of GAH for the year ended December
31, 1996, assuming it had been acquired by Patriot Operating Company as of
January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the twelve months ended November 30, 1996,
assuming such contracts had been acquired by Patriot Operating Company as
of January 1, 1996.
(F) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger, such hotels are assumed to be managed by
Patriot Operating Company.
(G) Adjustments to interest and other income consist of the following
components:
<TABLE>
<S> <C>
Interest and other income related to PAH RSI Lessee............. $ 2,030
Interest income related to the Subscription Notes receivable
from Patriot REIT.............................................. 4,712
Interest income related to the Participating Note............... 1,015
-------
$ 7,757
=======
</TABLE>
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(H) Represents adjustment to Racecourse facility rental expense as a result of
(i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and (ii) the PaineWebber Land Sale.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Represents expense related to the hotels recently acquired...... $24,497
Represents general liability insurance expense.................. 1,441
Related to elimination of costs related to the Cal Jockey
Merger......................................................... (861)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public
company and the continued growth of Patriot Operating Company.. 300
Represents expense related to the annual amortization of
unearned stock compensation computed on a straight-line basis
over the 3 to 5-year vesting periods........................... 2,887
-------
$28,264
=======
</TABLE>
(J) Represent general and administrative expense related to the 10 CHC Hotels
and general and administrative expense related to the contracts acquired
in connection with the GAH Acquisition and the CHCI Merger.
(K) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to increase depreciation related to F, F & E......... $ 245
Adjustment to reflect amortization of goodwill.................. 438
Adjustment to reflect amortization of trade names............... 125
Adjustment to reflect amortization of management contract
costs.......................................................... 783
-------
$ 1,591
=======
Adjustment to increase depreciation related to F, F & E......... $ 86
Adjustment to reflect amortization of goodwill.................. 600
Adjustment to reflect amortization of trade names............... 250
Adjustment to amortization of management contract costs......... 6,102
-------
$ 7,038
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(L) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
S-64
<PAGE>
(M) Represents the elimination of interest expense related to debt that
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(N) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustments to the operating results of
Patriot Operating Company for the year ended December 31, 1996.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the PaineWebber Direct Placement and the
LaSalle Direct Placement is approximately 14.5%.
(P) Pro forma earnings per share is computed based on 75,516 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for (i) the March 1997 2-for-1
stock split on Old Patriot REIT Common Stock effected in the form of a
stock dividend, (ii) the conversion of each share of Old Patriot REIT
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger,
and (iii) the July 1997 1.927-for-1 stock split effected in the form of a
stock dividend, as applicable. Historical basis earnings per share is
computed based on 11,106 weighted average common shares and common share
equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.30 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-65
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
OPERATING CHC HOTELS CHCI
COMPANY RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $20,437 $108,831 $146,163 $ -- $ 4,164 $ -- $279,595
Other hotel revenues... 9,834 98,144 71,352 -- 3,559 -- 182,889
Racecourse facility
revenue............... 10,861 22,538 -- -- -- -- 33,399
Management fee and
service fee income.... 1,577 2,836 -- 6,805 6,747 (3,264)(F) 14,701
Interest and other in-
come.................. 1,475 1,876 983 142 590 1,308 (G) 6,374
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 44,184 234,225 218,498 6,947 15,060 (1,956) 516,958
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--ho-
tel operations........ 10,032 90,512 84,047 -- 3,193 -- 187,784
Racecourse facility op-
erations.............. 10,536 19,664 (H) -- -- -- (86)(H) 30,114
Management company and
service department
operations............ 260 1,458 -- 2,147 8,703 -- 12,568
General and administra-
tive.................. 4,081 22,598 (I) 21,186 (I) 3,413(I) 5,573 (I) (2,626)(J) 54,225
Ground lease expense... -- 523 -- -- -- -- 523
Repair and mainte-
nance................. 1,186 13,077 9,967 -- -- -- 24,230
Utilities.............. 1,450 8,589 10,302 -- -- -- 20,341
Marketing.............. 3,122 16,402 21,678 532 -- -- 41,734
Management fees........ 699 7,395 4,827 -- -- (3,264)(F) 9,657
Depreciation and amor-
tization.............. 1,142 370 -- 103 792 3,042 (K) 5,449
Participating lease
payments.............. 10,686 57,947 (L) 69,676 (L) -- -- -- 138,309
Interest expense....... 11 912 -- 13 1,934 (1,934)(M) 936
Real estate and
personal property
taxes and casualty
insurance............. 48 220 -- 22 -- -- 290
------- -------- -------- ------ ------- ------- --------
Total expenses......... 43,253 239,667 221,683 6,230 20,195 (4,868) 526,160
------- -------- -------- ------ ------- ------- --------
Income (loss) before in-
come tax provision and
minority interests..... 931 (5,442) (3,185) 717 (5,135) 2,912 (9,202)
Income tax (provision)
benefit............... (94) 471 (N) -- -- (74)(N) (303)(N) --
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... 837 (4,971) (3,185) 717 (5,209) 2,609 (9,202)
Minority interest in
Patriot Operating
Company Partnership... (115) 604 (O) -- -- -- 845 (O) 1,334
Minority interest in
consolidated
subsidiaries.......... (13) -- -- -- -- 13 --
------- -------- -------- ------ ------- ------- --------
Net income (loss) appli-
cable to common share-
holders................ $ 709 $ (4,367) $ (3,185) $ 717 $(5,209) $ 3,467 $ (7,868)
======= ======== ======== ====== ======= ======= ========
Net income (loss) per
common share (P)....... $ 0.01 $ (0.10)
======= ========
</TABLE>
See notes on following page.
S-66
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
(A) Represents the historical results of operations of Patriot Operating
Company for the three months ended September 30, 1997. As a result of the
Cal Jockey Merger on July 1, 1997, Patriot Operating Company is considered
for financial reporting purposes to have commenced operations as of such
date.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 24 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 11 of the Recent Acquisitions (excluding the Sheraton City
Centre), the eight hotels previously leased to PAH RSI Lessee, the three
hotels previously leased to Grand Heritage Leasing, L.L.C., the Doubletree
Hotel at Allen Center, the Doubletree Hotel in Tulsa, Oklahoma and The
Buttes.
(C) Represents the combined results of operations for the nine months ended
September 30, 1997 of the 10 CHC Hotels and 25 leases of CHC Lease
Partners leased by CHC Lease Partners assuming that such hotels were
leased to Patriot Operating Company as of January 1, 1996.
(D) Represents the results of operations of GAH for the nine months ended
September 30, 1997, assuming it had been acquired by Patriot Operating
Company as of January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the nine months ended August 31, 1997, as if
they were acquired by Patriot Operating Company as of January 1, 1996.
(F) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger such hotels are assumed to be managed by
Patriot Operating Company.
(G) Adjustments to interest and other income consists of the following
components:
<TABLE>
<S> <C>
Interest income related to the Subscription Notes receivable
from Patriot REIT............................................. $ 723
Interest income related to the Participating Note.............. 585
-------
$ 1,308
=======
</TABLE>
All other interest and other income balances presented represent historical
amounts recorded by hotels and businesses acquired.
(H) Represents historical expense amount of $19,664 recorded by Bay Meadows
for the six months prior to the Cal Jockey Merger and an adjustment in the
amount of $86 to Racecourse facility rental expense as a result of (i) the
new lease agreement between Patriot REIT and Patriot Operating Company
subsequent to the Cal Jockey Merger and the related transactions and (ii)
the PaineWebber Land Sale.
(I) Represent general and administrative expense related to the hotels
acquired and general and administrative expense related to the contracts
acquired in connection with the GAH Acquisition and the CHCI Merger.
(J) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Eliminate costs related to the Cal Jockey Merger................ $(4,792)
Expense related to annual amortization of unearned stock
compensation computed on a straight-line basis over the 3 to 5-
year vesting periods........................................... 2,166
-------
$(2,626)
=======
</TABLE>
(K) Depreciation and amortization expense consists of the following
components:
<TABLE>
<S> <C>
Depreciation related to F, F & E and other assets................. $2,306
Amortization of goodwill.......................................... 546
Amortization of trade names....................................... 94
Amortization of management contract costs......................... 2,503
------
$5,449
======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(L) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(M) Represents the elimination of interest expense related to debt which
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(N) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustment to Patriot Operating Company for
the nine months ended September 30, 1997.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition, the CHCI Merger and the Paine Webber Direct Placement and the
La Salle Direct Placement is approximately 14.5%.
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<PAGE>
(P) Pro forma earnings per share is computed based on 76,090 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend, as applicable. Historical basis
earnings per share is computed based on 51,104 weighted average common
shares and common share equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.11 per common share. The impact
of Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-68
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels to Lessees, except those hotels
leased to Patriot Operating Company and except the Crowne Plaza Ravinia Hotel
and the Wyndham WindWatch Hotel, which are separately owned through the Non-
Controlled Subsidiaries and are managed directly by Operators. The Combined
Lessees subsequent to (i) the Cal Jockey Merger and the related transactions;
(ii) the Grand Heritage Acquisition (which included the acquisition of Grand
Heritage Leasing, L.L.C. which leased three hotels from Patriot REIT); (iii)
the acquisition of PAH RSI Lessee (which included the acquisition of eight
Patriot REIT hotel leases); and (iv) the GAH Acquisition and the CHCI Merger
(which included the acquisition of 25 Patriot REIT hotel leases from CHC Lease
Partners) consist of NorthCoast Lessee which leases 11 hotels (excluding the
Park Shore Hotel), Doubletree Lessee which leases four hotels, Crow Hotel
Lessee, Inc. which leases two hotels, and Metro Lease Partners which leases
one hotel. The Participating Leases provide for staggered terms of one to
twelve years and the payment of the greater of base or participating rent,
plus certain additional charges, as applicable.
The Combined Lessees' unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 are presented as if the 18 hotels that Patriot REIT leases
to the Combined Lessees pursuant to Participating Leases (excluding the Park
Shore Hotel) had been leased as of January 1, 1996. The eight hotels which
were leased to PAH RSI Lessee, the 25 hotels which were leased to CHC Lease
Partners, and the three hotels leased to Grand Heritage Leasing, L.L.C. are
assumed to have been leased to Patriot Operating Company and, therefore, have
been eliminated from the Pro Forma Condensed Combined Statements of Operations
for the Combined Lessees. The pro forma information is based in part upon the
Statements of Operations of NorthCoast Lessee filed with Old Patriot REIT's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Statements of Operations of NorthCoast Lessee filed with Patriot REIT's and
Patriot Operating Company's Joint Quarterly Report on Form 10-Q for the nine
months ended September 30, 1997 which are incorporated by reference herein. In
management's opinion, all adjustments necessary to reflect the effects of
these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of January 1, 1996, nor do they purport to represent the results of
operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
S-69
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room............................................ $ 88,410 $72,100
Food and beverage............................... 36,878 28,663
Telephone and other............................. 7,837 6,193
--------- -------
Total revenue................................ 133,125 106,956
--------- -------
Expenses:
Departmental costs and expenses................. 54,564 42,397
General and administrative...................... 12,595 9,520
Ground lease expense............................ 2,496 985
Repair and maintenance.......................... 6,670 5,072
Utilities....................................... 5,435 4,038
Marketing....................................... 9,169 7,495
Participating lease payments(A)................. 41,749 34,373
--------- -------
Total expenses............................... 132,678 103,880
--------- -------
Income before lessee income (expense)............ 447 3,076
--------- -------
Dividend and interest income(B).................. 142 1,087
Management fees(C)............................... (3,479) (3,102)
Lessee general and administrative(D)............. (577) (478)
--------- -------
(3,914) (2,493)
--------- -------
Net income (loss)................................ $ (3,467) $ 583
========= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
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<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Pursuant to the Agreement and Plan of Merger dated as of April 14, 1997, as
thereafter amended, between Patriot REIT, Patriot Operating Company and
Wyndham, and the transactions contemplated thereby, Wyndham will merge with
and into Patriot REIT, with Patriot REIT being the surviving corporation (the
"Merger"). In addition, pursuant to a Stock Purchase Agreement dated as of
April 14, 1997, Patriot REIT will purchase up to 9,447,745 shares of Wyndham
Common Stock owned by CF Securities, the principal stockholder of Wyndham.
Following the Merger, Patriot REIT will continue to be referred to as "Patriot
American Hospitality, Inc." and Patriot Operating Company will change its name
to "Wyndham International, Inc."
Pursuant to the Merger Agreement, subject to certain adjustments and the
right of Wyndham stockholders to elect to receive cash as described below,
Wyndham stockholders will be entitled to receive, for each share of Wyndham
Common Stock held by them at the Effective Time of the Merger, 1.372 shares of
Patriot REIT Common Stock and 1.372 shares of Patriot Operating Company Common
Stock (subject to certain REIT qualification requirements and the Excess Share
Provisions), which shares will be paired and transferable only as a single
unit. If the Effective Time of the Merger is on or prior to December 31, 1997
and the Patriot Average Closing Price is less than $21.86 but greater than or
equal to $20.87, Wyndham stockholders will be entitled to receive, for each
share of Wyndham Common Stock held by them at the Effective Time of the
Merger, the number of Paired Shares equal to $30.00 divided by the Patriot
Average Closing Price. If the Effective Time of the Merger is on or prior to
December 31, 1997 and the Patriot Average Closing Price is less than $20.87,
Wyndham stockholders will be entitled to receive, for each share of Wyndham
Common Stock held by them at the effective time of the Merger, 1.438 Paired
Shares, provided, however, that in the event that the Patriot Average Closing
Price is less than $20.87, Wyndham has the right, waivable by it, to terminate
the Merger Agreement. Each Paired Share of Patriot REIT Common Stock and
Patriot Operating Company Common Stock outstanding immediately prior to the
Merger will remain outstanding after the Merger and will represent the same
number of Paired Shares of Patriot REIT Common Stock and Patriot Operating
Company Common Stock.
Pursuant to the Second Amendment, if the Effective Time of the Merger does
not occur on or prior to December 31, 1997, other than as a result of the
failure, caused by Wyndham, of certain closing conditions to be satisfied (a
"Wyndham Delay"), and the Patriot Average Closing Price is less than $27.50
but greater than or equal to $25.50, the Exchange Ratio will be adjusted so
that each share of Wyndham Common Stock, other than shares as to which Cash
Consideration is to be received, will be converted into the right to receive
the number of Paired Shares equal to $37.73 divided by the Patriot Average
Closing Price. If the Effective Time of the Merger does not occur on or prior
to December 31, 1997 other than as a result of a Wyndham Delay, and the
Patriot Average Closing Price is less than $25.50, the Exchange Ratio will be
adjusted so that each share of Wyndham Common Stock, other than shares as to
which Cash Consideration is to be received, will be converted into the right
to receive 1.480 Paired Shares, provided, however, that in such circumstances
Wyndham has the right, waivable by it, to terminate the Merger Agreement.
As of December 9, 1997, the average closing price of a Paired Share over the
previous 20 trading days was $30.71. Management of the Patriot Companies do
not anticipate that the Patriot Average Closing Price, as calculated at the
Effective Time of the Merger (assuming a closing date of January 5, 1998),
will result in an adjustment to the Exchange Ratio.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
under the Merger Agreement to make a Cash Election to receive Cash
Consideration, and CF Securities has an equivalent right under the Stock
Purchase Agreement; provided, however, that the maximum aggregate amount of
cash to be paid to Wyndham stockholders and CF Securities pursuant to such
Cash Election rights will be a total of $100,000. Pursuant to the Second
Amendment, Patriot REIT, Patriot Operating Company and Wyndham also agreed to
change the amount
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<PAGE>
per share payable upon a Cash Election to a fixed amount so that stockholders
of Wyndham who make a Cash Election will be entitled to receive Cash
Consideration in an amount per share equal to equal to $42.80. Prior to the
execution of the Second Amendment, the Merger Agreement provided that
stockholders of Wyndham who made a Cash Election would have been entitled to
receive Cash Consideration in an amount per share equal to the Cash
Consideration Fair Market Value, as provided in the April Merger Agreement. In
the event that holders of Wyndham Common Stock and CF Securities elect to
receive more than $100,000 in cash, such cash will be allocated on a pro rata
basis among such stockholders and CF Securities based upon the respective
number of shares of Wyndham Common Stock as to which they have made a Cash
Election, and the Wyndham stockholders (other than CF Securities) will receive
Paired Shares at the Exchange Ratio for their shares of Wyndham Common Stock
which are not converted into Cash Consideration. CF Securities has delivered to
Patriot REIT a Cash Election pursuant to which CF Securities has elected to
receive Cash Consideration with respect to all 9,447,745 shares of Wyndham
Common Stock beneficially owned by CF Securities. Because CF Securities has
made a Cash Election with respect to all of the shares of Wyndham Common Stock
beneficially owned by it, the maximum amount of cash available to be paid to
other holders of Wyndham Common Stock in the Merger is expected to be
approximately $56.3 million. If no other stockholders of Wyndham make a Cash
Election, CF Securities will receive the entire $100 million of cash available
for Cash Elections. Under such circumstances, CF Securities may receive a
combination of Paired Shares and Series A Preferred Stock pursuant to the terms
of the Stock Purchase Agreement for its shares of Wyndham Common Stock which
are not converted into Cash Consideration, subject to certain REIT
qualification limitations that could, under certain limited circumstances,
result in the payment of cash in lieu of shares of Series A Preferred Stock.
The Second Amendment also provides that in addition to receiving Paired
Shares at the Exchange Ratio, and/or Cash Consideration in the case of shares
of Wyndham Common Stock as to which a Cash Election has been made, holders of
Wyndham Common Stock will be entitled to receive an additional cash payment
(the "Additional Cash Consideration") equal to the sum of (i) the Pro Forma
Dividend Amount (as defined below), if any, and (ii) if the Effective Time of
the Merger does not occur on or prior to January 5, 1998 other than as a result
of a Wyndham Delay, a per share amount equal to the product of the Full
Dilution Percentage (as defined below) and the Per Share Deferral Amount (as
defined below), if any. Under the terms of the Second Amendment, the term "Pro
Forma Dividend Amount" is defined as the amount equal to the aggregate per
share amount of all dividends declared on the Patriot REIT Common Stock and the
Patriot Operating Company Common Stock the record date for which is on or after
November 26, 1997 but prior to the Effective Time, multiplied by the Exchange
Ratio. Under the terms of the Second Amendment, the term "Per Share Deferral
Amount" is defined as follows: (X) so long as there is not in effect an order,
ruling or injunction in any action brought by or on behalf of one or more
stockholders of Wyndham or in the right of Wyndham (a "Wyndham Stockholder
Injunction") that causes the condition under the Merger Agreement that there
exist no order, ruling or injunction of a court which prohibits consummation of
the Merger (the "Injunction Condition") to not be satisfied, (a) if the
Effective Time is on or before January 31, 1998, the Per Share Deferral Amount
shall be an amount equal to $10,000, divided by the total number of shares of
Wyndham Common Stock outstanding immediately prior to the Effective Time (the
"Wyndham Outstanding Shares"), (b) if the Effective Time is after January 31,
1998 but on or before February 28, 1998, the Per Share Deferral Amount shall be
an amount equal to $21,000, divided by the Wyndham Outstanding Shares, and (c)
if the Effective Time is after February 28, 1998, the Per Share Deferral Amount
shall be an amount equal to $32,000, divided by the Wyndham Outstanding Shares;
and (Y) in the event that there is in effect a Wyndham Stockholder Injunction
that causes the Injunction Condition to not be satisfied, (A) if the Effective
Time is on or before January 31, 1998, the Per Share Deferral Amount shall be
equal to zero, (B) if the Effective Time is after January 31, 1998 but on or
before February 28, 1998, the Per Share Deferral Amount shall be an amount
equal to $15,000, divided by the Wyndham Outstanding Shares, and (C) if the
Effective Time is after February 28, 1998, the Per Share Deferral Amount shall
be an amount equal to $30,000, divided by the Wyndham Outstanding Shares. Under
the terms of the Second Amendment the term "Full Dilution Percentage" is
defined as (A) the total number of shares of Wyndham Common Stock outstanding
immediately prior to the Effective Time, divided by (B) the sum of the total
number of shares of Wyndham Common Stock in clause (A) above and the total
number of shares of Wyndham Common Stock as to which Assumed Options are or may
become exercisable (whether or not currently exercisable). The
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<PAGE>
Full Dilution Percentage will cause the portion of the Additional Cash
Consideration attributable to the Per Share Deferral Amount to be calculated
on a fully-diluted basis assuming exercise of all of Wyndham's stock options.
The parties to the Stock Purchase Agreement have confirmed that the change
in the Merger Consideration resulting from the Second Amendment will have a
corresponding effect under the Stock Purchase Agreement.
At November 3, 1997, Wyndham's portfolio of owned, leased or managed hotels
consisted of 93 hotels operated by Wyndham, as well as 8 franchised hotels,
which in the aggregate contained 24,083 rooms. Wyndham's portfolio includes 84
upscale hotel properties and 17 midscale properties operating under the
ClubHouse brand. Wyndham acquired through merger in July 1997 Kansas City-
based ClubHouse, a privately-held hospitality company with a portfolio of 17
hotels. Of the hotels comprising ClubHouse's portfolio, Wyndham acquired
through the merger or in related acquisition transactions ownership of 13
ClubHouse hotels and partial ownership of three ClubHouse hotels. Wyndham also
acquired through the merger ownership of the "ClubHouse" brand name, as well
as license rights with respect to one franchised ClubHouse hotel.
Following the Merger, Patriot REIT, through certain of its subsidiaries,
will own the 10 Wyndham hotels and 13 ClubHouse hotels and will lease such
hotels to Wyndham International. The 13 hotel leases to be assumed by Patriot
REIT will be sub-leased to Wyndham International. Wyndham's remaining 52
management and franchise contracts (excluding the Wyndham WindWatch Hotel
which is owned by Patriot REIT), the Wyndham and the ClubHouse proprietary
brand names and the Wyndham hotel management company will be transferred to
corporate subsidiaries of Patriot REIT (collectively, the "New Non-Controlled
Subsidiaries"). Patriot REIT will own a 99% non-voting interest and Wyndham
International will own the 1% controlling voting interest in each of the New
Non-Controlled Subsidiaries. Therefore, the operating results of the New Non-
Controlled Subsidiaries will be combined with those of Wyndham International
for financial reporting purposes. Patriot REIT will account for its investment
in the New Non-Controlled Subsidiaries using the equity method of accounting.
Patriot REIT will also assume Wyndham's existing indebtedness, substantially
all of which is expected to be refinanced with funds drawn on the Term Loan
and/or the Revolving Credit Facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of Wyndham will materially change;
however, the allocation of purchase costs is subject to final determination
based upon estimates and other evaluations of fair market value as of the
close of the transaction. Therefore, the allocation reflected in the following
unaudited Pro Forma Financial Statements may differ from the amounts
ultimately determined.
In connection with the execution of the Merger Agreement, the Patriot REIT
Partnership also entered into agreements with the Crow Family Entities
providing for the acquisition by Patriot REIT of up to 11 full-service
Wyndham-brand hotels with 3,072 rooms for approximately $331,664 in cash, plus
approximately $14,000 in additional consideration if two hotels meet certain
operational targets. However, Patriot REIT currently expects that the purchase
of the Milwaukee Hotel will be delayed up to 24 months pending the receipt of
certain third party consents. Accordingly, the Pro Forma Financial Statements
include only the results of operations of the other 10 hotels with 2,851 rooms
which represent approximately $308,633 of the total purchase price. Subsequent
to the Crow Assets Acquisition, Patriot REIT will lease the purchased hotels
to Wyndham International. In addition, in connection with the Crow Assets
Acquisition, the leases with the Wyndham Lessee related to the Wyndham Garden
Hotel-Midtown and the Wyndham Greenspoint Hotel will be terminated and Patriot
REIT will lease these hotel properties to Wyndham International.
In connection with the execution of the Patriot/IHC Merger Agreement, the
Patriot REIT Partnership and the Crow Family Entities have agreed in principle
that the Crow Assets Closing would be scheduled for December 16, 1997 as to a
number of Final Hotels sufficient to satisfy the NOI Condition and that they
would waive any conditions to the closing that the Merger shall be consummated
concurrently with consummation of
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<PAGE>
the Crow Assets Acquisition. The parties also agreed that in the event that
the Merger does not close on or before March 31, 1998, other than as a result
of a delay caused by (i) the failure of Wyndham to have obtained all required
consents, authorizations and approvals of governmental bodies or third parties
(other than the HPT Consents) or (ii) the failure of Wyndham to have (A)
performed its obligations under the Merger Agreement, (B) completed the
restructuring of certain assets and/or Wyndham Subsidiaries, and obtained all
required consents (or waivers thereof) in connection therewith (other than the
HPT Consents), (C) acknowledged the execution and delivery by Patriot REIT and
Patriot Operating Company of the Cooperation Agreement, or (D) obtained all
required amendments, consents, authorizations, modifications and approvals
relating to the Wyndham Anatole Hotel management agreement, the Patriot REIT
Partnership will be required to pay additional consideration (the "Additional
Consideration") for the purchased hotels to the Crow Family Entities such that
the total purchase price equals the Crow Hotel Properties' budgeted NOI (with
appropriate deductions for management fees, trade name fees and F, F & E
reserves) for 1998 capitalized at an 8% rate. The Additional Consideration, if
payable, will be payable 60% in Paired Shares (with the value thereof equal to
the average closing price of a Paired Share over the ten trading days prior to
March 31, 1998) (the "Non-Cash Additional Consideration") and 40% in cash,
provided that the Crow Family Entities generally have the option of receiving
the Non-Cash Additional Consideration in the form of OP Units of the Patriot
Partnerships. The Patriot REIT Partnership and the Crow Family Entities also
agreed that the Crow Family Entities would receive registration rights with
respect to the Paired Shares (or the Paired Shares into which OP Units may be
redeemable) received as Non-Cash Additional Consideration based on the terms
and conditions of the Registration Rights Agreement relating to the Paired
Shares and shares of Series A Preferred Stock to be received by the
Registration Rights Holders pursuant to the Merger and the Stock Purchase.
The Merger and the Related Transactions and the Crow Assets Acquisition are
collectively referred to herein as the "Wyndham Transactions." The Merger and
the Related Transactions are expected to be consummated January 5, 1998 and
are subject to various conditions, including approval of the Merger by the
stockholders of Patriot REIT, Patriot Operating Company and Wyndham. The Crow
Assets Acquisition is expected to be consummated on December 16, 1997 and is
subject to various conditions.
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the nine months ended September 30, 1997 assume the
Merger and the Crow Assets Acquisition had occurred on January 1, 1996 and are
based on the applicable terms of the Merger Agreement in effect assuming the
Effective Time of the Merger is January 5, 1998, and that ten hotels are
purchased in the Crow Assets Acquisition under the terms in effect if the
closing of the Crow Assets Acquisition occurs on or before December 16, 1997.
The pro forma information is also presented as if the following Recent
Transactions had occurred on January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased this land and the
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel and the Sheraton City Centre);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) Patriot Operating Company has acquired the Participating Note; and
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<PAGE>
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on terms set forth in the CHCI
Merger Agreement.
In addition, the pro forma results of operations for the year ended December
31, 1996 assume the 24 hotels acquired during 1996 and the private placement
of equity securities and the public offering of common stock completed by Old
Patriot REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
The Pro Forma Condensed Combined Statements of Operations are derived from
(i) the Patriot REIT and Patriot Operating Company Pro Forma Condensed
Combined Statements of Operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997 included elsewhere in this Supplement;
(ii) the Consolidated Statements of Income of Wyndham filed with Wyndham's
Annual Report on Form 10-K for the year ended December 31, 1996 incorporated
by reference herein and the nine months ended September 30, 1997 included
elsewhere in this Supplement; and (iii) the Combined Crow Family Hotel
Partnerships financial statements for the year ended December 31, 1996 and the
nine months ended September 30, 1997 included in the Patriot Companies' Joint
Current Report on Form 8-K dated December 10, 1997 incorporated by reference
herein. During 1996, one of the hotels to be acquired in the Crow Assets
Acquisition (the La Guardia Airport Hotel) was closed for renovation. As a
result the hotel reported no historical results of operations for 1996 and
therefore is not included in the following unaudited Pro Forma Condensed
Combined Statements of Operations for the year ended December 31, 1996 and the
nine months ended September 30, 1997. The following pro forma financial
information is also based in part upon the following additional financial
information incorporated by reference herein:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996;
(iii) the Separate and Combined Statements of Income of Patriot REIT and
Patriot Operating Company filed with the Patriot Companies' Joint Quarterly
Report on Form 10-Q for the nine months ended September 30, 1997;
(iv) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(v) the historical financial statements of certain hotels and businesses
acquired by the Patriot Companies filed in the Patriot Companies' Joint
Current Reports on Form 8-K dated September 17, 1997, September 30, 1997,
as amended, and December 10, 1997; and
(vi) the Pro Forma Condensed Combined Statements of Operations of the
Combined Lessees which are located elsewhere in this Supplement.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the
Wyndham Transactions would have been assuming such transactions had been
completed as of January 1, 1996, nor do they purport to represent the results
of operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
S-75
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $279,948 $ -- $(247,218)(A) $ 32,730
Hotel revenue........... -- 876,663 -- 876,663
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(B) 52,280
Management fee, service
fee and reimbursement
income................. -- 49,225 -- 49,225
Interest and other
income................. 2,797 12,262 (5,916)(C) 9,143
-------- --------- --------- ----------
Total revenue........... 300,459 990,096 (270,514) 1,020,041
-------- --------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 368,568 -- 368,568
Racecourse facility
operations............. -- 46,351 (5,611)(B) 40,740
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... -- 43,809 -- 43,809
General and
administrative......... 7,097 103,877 (34)(C) 110,940
Ground lease and hotel
lease expense.......... 16,824 12,502 (11,769)(B) 17,557
Repair and maintenance.. -- 41,991 -- 41,991
Utilities............... -- 36,834 -- 36,834
Interest expense........ 124,637 1,393 (5,882)(C) 120,148
Real estate and personal
property taxes and
casualty insurance..... 34,542 847 -- 35,389
Marketing............... -- 70,577 -- 70,577
Management fees......... -- 9,469 -- 9,469
Depreciation and
amortization........... 93,775 29,425 -- 123,200
Participating lease
payments............... -- 247,218 (247,218)(A) --
-------- --------- --------- ----------
Total expenses.......... 276,875 1,012,861 (270,514) 1,019,222
-------- --------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 23,584 (22,765) -- 819
Equity in earnings of
unconsolidated
subsidiaries........... 2,877 -- 5,045 (D) 7,922
-------- --------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 26,461 (22,765) 5,045 8,741
Income tax (provision)
benefit................ (345) 7,532 -- 7,187
-------- --------- --------- ----------
Income (loss) before
minority interests...... 26,116 (15,233) 5,045 15,928
Minority interests in
the Patriot
Partnerships........... (2,549) 1,141 -- (1,408)
Minority interest in
consolidated
subsidiaries .......... (1,832) 5,045 (5,045)(D) (1,832)
-------- --------- --------- ----------
Net income (loss)
applicable to common
shareholders............ $ 21,735 $ (9,047) $ -- $ 12,688 (E)
======== ========= ========= ==========
Net income (loss) per
common Paired Share(F).. $ 0.21 $ (0.09) $ 0.12 (E)
======== ========= ==========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets are assumed to be acquired by Patriot Operating Company, the
elimination of $4,712 of interest income and expense related to the
Subscription Notes issued to Patriot Operating Company in connection with
the subscription for shares of Patriot Operating Company Common Stock and
Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
shareholders and net income per Paired Share (i) assuming approximately
2,336 shares of Wyndham Common Stock are purchased for cash ("Cash
Option"), based on total funds available of $100,000 and Cash
Consideration of $42.80 per share of Wyndham Common Stock; (ii) assuming
no Wyndham stockholders elect to receive cash ("All Stock"); and (iii)
assuming an average interest rate of 7.333% per annum on the incremental
borrowings related to the Revolving Credit Facility and the Term Loan
(representing LIBOR plus 1.85%, respectively) on outstanding debt
obligations of approximately $1,472,911 for Cash Option and $1,372,911 for
All Stock.
S-76
<PAGE>
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings................................................ $ -- $(7,333)
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships)............................................. $ 6,909 $14,242
Income tax provision....................................... 7,187 7,187
Minority interests in the Patriot Partnerships............. (1,408) (2,114)
------- -------
Net income applicable to common shareholders............... $12,688 $19,315
======= =======
Net income per common Paired Share......................... $ 0.12 $ 0.18
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership................................. 10.5% 10.2%
======= =======
Patriot Operating Company Partnership.................... 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and common
Paired Share equivalents outstanding...................... 102,543 105,758
======= =======
</TABLE>
Pursuant to the April Merger Agreement, if the Patriot Average Closing Price
of the Paired Shares is less than $21.86, the Exchange Ratio would be
subject to adjustment. Pursuant to the Second Amendment, if the Effective
Time of the Merger occurs after December 31, 1997, other than as a result of
a Wyndham Delay, and the Patriot Average Closing Price is less than $27.50,
the Exchange Ratio would be subject to adjustment. As of December 9, 1997,
the average closing price of a Paired Share as reported on the NYSE over the
previous 20 trading days was $30.71. Management of the Patriot Companies do
not anticipate that the Patriot Average Closing Price, as calculated at the
Effective Time of the Merger (assuming a closing of January 5, 1998), will
result in an adjustment to the Exchange Ratio.
Additionally, the following table presents the net impact to pro forma net
income applicable to common shareholders and net income per common Paired
Share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................... $ -- $(7,583)
======= =======
Income before income tax provision and minority interests
in the Patriot Partnerships (after minority interest in
consolidated subsidiaries and other partnerships)......... $ 2,635 $10,218
Income tax provision....................................... 7,187 7,187
Minority interests in the Patriot Partnerships............. (960) (1,703)
------- -------
Net income applicable to common shareholders............... $ 8,862 $15,702
======= =======
Net income per common Paired Share......................... $ 0.09 $ 0.15
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership................................. 10.5% 10.2%
======= =======
Patriot Operating Company Partnership.................... 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and common
Paired Share equivalents outstanding...................... 102,543 105,758
======= =======
</TABLE>
The Patriot Companies are negotiating with PaineWebber Real Estate and Chase
to increase the amount available under the Revolving Credit Facility to
$900,000 and to arrange for a new Term Loan commitment for an unsecured Term
Loan of $350,000. The Revolving Credit Facility and the Term Loan will be
used in part to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,737 related to the financing associated with the Wyndham
Transactions have been reflected in the pro forma financial information.
(F) Pro forma earnings per share is computed based on 102,543 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.13 per Paired Share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
S-77
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $229,977 $ -- $(202,610)(A) $ 27,367
Hotel revenue............ -- 720,754 -- 720,754
Racecourse facility
revenue, hotel and land
lease revenue........... 19,759 33,399 (19,501)(B) 33,657
Management fee, service
fee and reimbursement
income.................. -- 45,549 -- 45,549
Interest and other
income.................. 4,043 8,507 (2,306)(C) 10,244
-------- -------- --------- --------
Total revenue............ 253,779 808,209 (224,417) 837,571
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 282,402 -- 282,402
Racecourse facility
operations.............. -- 30,114 (3,246)(B) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses.. -- 40,331 -- 40,331
General and
administrative.......... 7,137 81,670 (24)(C) 88,783
Ground lease and hotel
lease expense........... 20,017 16,778 (16,255)(B) 20,540
Repair and maintenance... -- 34,512 -- 34,512
Utilities................ -- 29,841 -- 29,841
Interest expense......... 94,414 936 (2,282)(C) 93,068
Real estate and personal
property taxes and
casualty insurance...... 27,066 290 -- 27,356
Marketing................ -- 59,095 -- 59,095
Management fees.......... -- 9,657 -- 9,657
Depreciation and
amortization............ 70,854 20,705 -- 91,559
Participating lease
payments................ -- 202,610 (202,610)(A) --
-------- -------- --------- --------
Total expenses........... 219,488 808,941 (224,417) 804,012
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 34,291 (732) -- 33,559
Equity in earnings of
unconsolidated
subsidiaries............ 6,027 -- (1,419)(D) 4,608
-------- -------- --------- --------
Income (loss) before
income tax provision and
minority interests....... 40,318 (732) (1,419) 38,167
Income tax (provision)
benefit................. (256) (3,477) -- (3,733)
-------- -------- --------- --------
Income (loss) before
minority interests....... 40,062 (4,209) (1,419) 34,434
Minority interests in the
Patriot Partnerships.... (4,010) 630 -- (3,380)
Minority interest in
consolidated
subsidiaries............ (1,869) (1,419) 1,419 (D) (1,869)
-------- -------- --------- --------
Net income (loss)
applicable to common
shareholders............. $ 34,183 $ (4,998) $ -- $ 29,185 (E)
======== ======== ========= ========
Net income (loss) per
common Paired Share(F)... $ 0.33 $ (0.05) $ 0.28 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Patriot Operating Company, the elimination
of $1,450 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
shareholders and net income per Paired Share (i) assuming approximately
2,336 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, and Cash Consideration
of $42.80 per share of Wyndham Common Stock; (ii)
S-78
<PAGE>
assuming Wyndham stockholders elect to receive All Stock; and (iii) assuming
an average interest rate of 7.453% per annum on the incremental borrowings
related to the Revolving Credit Facility and the Term Loan (representing
LIBOR plus 1.85%) on outstanding debt obligations of approximately
$1,472,911 for Cash Option and $1,372,911 for All Stock.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $(5,590)
======= =======
Income before minority interests in the Patriot
Partnerships and income tax benefit (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $36,298 $41,888
Income tax provision.................................... (3,733) (3,733)
Minority interests in the Patriot Partnerships.......... (3,380) (3,853)
------- -------
Net income applicable to common shareholders............ $29,185 $34,302
======= =======
Net income per common Paired Share...................... $ 0.28 $ 0.32
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 10.5% 10.2%
======= =======
Patriot Operating Company Partnership................. 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 103,117 106,332
======= =======
</TABLE>
Pursuant to the April Merger Agreement, if the Patriot Average Closing Price
of the Paired Shares is less than $21.86, the Exchange Ratio would be
subject to adjustment. Pursuant to the Second Amendment, if the Effective
Time of the Merger occurs after December 31, 1997, other than as a result of
a Wyndham Delay, and the Patriot Average Closing Price is less than $27.50,
the Exchange Ratio would be subject to adjustment. As of December 9, 1997,
the average closing price of a Paired Share as reported on the NYSE over the
previous 20 trading days was $30.71. Management of the Patriot Companies do
not anticipate that the Patriot Average Closing Price, as calculated at the
Effective Time of the Merger (assuming a closing of January 5, 1998), will
result in an adjustment to the Exchange Ratio.
Additionally, the following table presents the net impact to pro forma net
income applicable to common stockholders and net income per common Paired
Share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................ $ -- $(5,777)
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $33,391 $39,168
Income tax provision.................................... (3,733) (3,733)
Minority interests in the Patriot Partnerships.......... (3,075) (3,576)
------- -------
Net income applicable to common shareholders............ $26,583 $31,859
======= =======
Net income per common Paired Share...................... $ 0.26 $ 0.30
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 10.5% 10.2%
======= =======
Patriot Operating Company Partnership................. 11.2% 10.9%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 103,117 106,332
======= =======
</TABLE>
The Patriot Companies are negotiating with PaineWebber Real Estate and Chase
to increase the amount available under the Revolving Credit Facility to
$900,000 and to arrange for a new Term Loan commitment for an unsecured Term
Loan of $350,000. The Revolving Credit Facility and the Term Loan will be
used to finance the Wyndham Transactions. Deferred loan costs of
approximately $6,737 related to the financing associated with the Wyndham
Transactions have been reflected in the pro forma financial information.
(F) Pro forma earnings per share is computed based on 103,117 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.30 per Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
S-79
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Wyndham Transactions had occurred as of September 30, 1997
and is based on the applicable terms of the Merger Agreement in effect
assuming the Effective Time of the Merger is January 5, 1998, and that ten
hotels are purchased in the Crow Assets Acquisition under the terms in effect
if the closing of the Crow Assets Acquisition occurs on or before December 16,
1997. The Pro Forma Condensed Combined Balance Sheet is derived from the
Patriot REIT and Patriot Operating Company Pro Forma Condensed Combined
Balance Sheet as of September 30, 1997 included elsewhere in this Joint Proxy
Statement/Prospectus, which is presented as if the following transactions have
occurred as of September 30, 1997:
(i) Patriot REIT acquired the three CHC Hotels and The Buttes (which were
acquired subsequent to September 30, 1997) and has acquired the remaining
approximate 50% interest in the Omni Inner Harbor Hotel and leased such
hotels to Patriot Operating Company;
(ii) Patriot Operating Company acquired the members' interests in PAH RSI
Lessee;
(iii) Patriot Operating Company completed the GAH Acquisition; and
(iv) the CHCI Merger was consummated on terms set forth in the CHCI
Merger Agreement.
Such pro forma information is based in part upon Wyndham's Consolidated
Balance Sheet as of September 30, 1997 and Patriot REIT's and Patriot
Operating Company's Combined Balance Sheet as of September 30, 1997 and should
be read in conjunction with the financial statements presented elsewhere in
this Supplement and filed with Wyndham's and the Patriot Companies' respective
Quarterly Reports on Form 10-Q for the nine months ended September 30, 1997.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Wyndham Transactions at their
estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management does not
anticipate that the preliminary allocation of purchase costs based upon the
estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may
differ from the amounts ultimately determined. The following unaudited Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of September 30, 1997, nor does it purport to represent the
future financial position of Patriot REIT and Wyndham International as
adjusted for the Wyndham Transactions.
S-80
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
PATRIOT
OPERATING CROW
COMPANY ASSETS
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
---------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $1,657,283 $320,357 $290,391 $165,494 (D) $2,433,525
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,053 -- -- -- 74,053
Notes and other
receivables from
affiliates............. -- -- 24,800 -- 24,800
Notes receivable........ 15,913 -- 1,931 -- 17,844
Investment in
unconsolidated
subsidiaries........... 12,061 -- 4,092 -- 16,153
Cash and cash
equivalents............ 21,515 -- 14,819 -- 36,334
Restricted cash......... 38,196 -- 936 -- 39,132
Accounts receivable,
net.................... 38,540 -- 15,682 -- 54,222
Goodwill................ 128,108 -- 20,857 311,584 (E) 460,549
Deferred expenses, net.. 16,626 -- 8,019 18 (F) 24,663
Deferred acquisition
costs.................. 39,970 -- -- -- 39,970
Management contract
costs.................. 45,364 -- 11,419 53,463 (G) 110,246
Trade name and franchise
costs.................. 7,500 -- -- 85,550 (H) 93,050
Prepaid expenses and
other assets........... 11,323 -- 41,006 -- 52,329
Deferred income taxes... 700 -- 16,347 (15,551)(I) 1,496
---------- -------- -------- -------- ----------
Total assets........... $2,107,152 $320,357 $450,299 $600,558 $3,478,366
========== ======== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 789,930 $320,357 $228,986 $133,638 (J) $1,472,911
Accounts payable and
accrued expenses....... 50,377 -- 45,756 -- 96,133
Dividends and
distributions payable.. 21,727 -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- 2,968
Deferred income tax
liability.............. 4,846 -- 20,970 50,609 (I) 76,425
Deposits................ 2,037 -- 1,996 -- 4,033
Deferred gain........... -- -- 11,511 (11,511)(I) --
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 264,862 -- -- -- 264,862
Minority interest in
consolidated
subsidiaries........... 29,284 -- 2,828 -- 32,112
Shareholders' equity:
Preferred stock........ 44 -- -- -- 44
Common stock........... 1,377 -- 216 313 (K) 1,906
Paid-in capital........ 1,049,267 -- 133,137 466,650 (L) 1,649,054
Unearned stock compen-
sation, net........... (15,075) -- -- (15,075)
Notes receivable from
stockholders.......... -- -- (17,138)(M) -- (17,138)
Receivable from affili-
ates.................. -- -- (1,229)(N) -- (1,229)
Unrealized gain on se-
curities available for
sale.................. -- -- 790 (790)(L) --
Unrealized foreign ex-
change loss........... -- -- (192) 192 (L) --
Retained earnings...... (100,396) -- 22,668 (38,543)(L) (116,271)
---------- -------- -------- -------- ----------
Total shareholders' eq-
uity.................. 935,217 -- 138,252 427,822 1,501,291
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $2,107,152 $320,357 $450,299 $600,558 $3,478,366
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
S-81
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE WYNDHAM TRANSACTIONS
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(A) Represents the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of September 30, 1997, which reflects the
Cal Jockey Merger and the transactions related thereto.
(B) Represents adjustments to Patriot REIT's and Wyndham International's pro
forma financial position assuming consummation of the Crow Assets
Acquisition had occurred at September 30, 1997.
(C) Represents Wyndham's pro forma financial position as of September 30,
1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Wyndham Transactions, net of Wyndham's historical
deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham (including the management contracts
acquired in the ClubHouse acquisition) are adjusted to their estimated
fair market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 44 hotels. The contracts
have an average remaining life of approximately 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents the estimated fair market value of the Wyndham and ClubHouse
tradenames and other franchise related assets.
(I) Pursuant to the Merger, deferred income taxes, the deferred income tax
liability and the deferred gain which resulted from the sale and lease-
back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Merger.
(J) Represents financing of $6,737 of additional loan fees related to the
financing of the Wyndham Transactions, estimated mortgage prepayment
penalties of $15,875, acquisition-related costs of $11,026 incurred in
connection with the Wyndham Transactions, and $100,000 of cash paid for
shares of Wyndham Common Stock.
(K) Represents an adjustment to record the exchange of Wyndham Common Stock
for Paired Shares. Pursuant to the Merger Agreement, Wyndham stockholders
may elect to receive for each share of Wyndham Common Stock held by them
either (i) cash for shares, up to a maximum of $100,000 of total funds
available or (ii) 1.372 shares of Patriot REIT Common Stock and 1.372
shares of Wyndham International Common Stock. As of September 30, 1997,
21,618 shares of Wyndham Common Stock were outstanding. The pro forma
balances assume approximately 2,336 shares of Wyndham Common Stock are
purchased for cash pursuant to the Cash Option (based on total funds
available of $100,000; and Cash Consideration of $42.80 per share of
Wyndham Common Stock). The remaining 19,282 shares of Wyndham Common Stock
were assumed to be exchanged for approximately 26,455 Paired Shares,
resulting in an adjustment to increase common stock.
(L) Represents adjustments to shareholders' equity to eliminate Wyndham's pro
forma equity accounts totaling $156,619 and record equity based on the
number of Paired Shares issued in the Merger. The pro forma balances
assume Wyndham stockholders elect to receive cash for their shares of
Wyndham Common Stock up to the maximum funds available of $100,000. As a
result, approximately 2,336 shares of Wyndham Common Stock were assumed to
be purchased for cash (based on total funds available of $100,000; and
Cash Consideration of $42.80 per share of Wyndham Common Stock). The total
purchase consideration for the Merger is approximately $688,413 (based
upon 19,282 shares of Wyndham Common Stock assumed to be exchanged for
approximately 26,455 Paired Shares and an estimated market price per
Paired Share of $22.25 (which is based upon the closing price on April 11,
1997, the business day prior to the date of the execution of the Merger
Agreement, of Old Patriot REIT's Common Stock) and $100,000 of cash
consideration).
Set forth below is a summary comparison of the net impact to pro forma
borrowings and shareholders' equity (i) assuming approximately 2,336 shares
of Wyndham Common Stock are purchased pursuant to the Cash Option (the basis
used for pro forma balance sheet presentation purposes), and (ii) assuming
Wyndham stockholders elect to receive All Stock.
<TABLE>
<CAPTION>
CASH OPTION ALL STOCK
----------- ---------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash............................................ 2,336 --
======== ========
Cash paid for shares of Wyndham Common Stock (assumed
to be financed through the Revolving Credit Facility
or the Term Loan.................................... $100,000 $ --
Number of Paired Shares issued pursuant to the
Merger.............................................. 26,455 29,660
======== ========
Purchase consideration for shares.................... $588,413 $659,942
Adjustment to common stock for Paired Shares issued.. (529) (593)
Outstanding options to purchase common stock assumed
in the Merger....................................... 11,903 11,903
Book value of Wyndham paid-in capital................ (133,137) (133,137)
-------- --------
Adjustment to paid-in capital........................ 466,650 538,115
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt......................... (15,875) (15,875)
Elimination of historical retained earnings.......... (22,668) (22,668)
-------- --------
Adjustment to retained earnings...................... (38,543) (38,543)
Adjustment to common stock........................... 313 377
Unrealized gain on securities available for sale..... (790) (790)
Unrealized foreign exchange loss..................... 192 192
-------- --------
Adjustment to shareholders' equity.................. $427,822 $499,351
======== ========
</TABLE>
S-82
<PAGE>
Pursuant to the April Merger Agreement, if the Patriot Average Closing Price
of the Paired Shares is less than $21.86, the Exchange Ratio would be
subject to adjustment. Pursuant to the Second Amendment, if the Effective
Time of the Merger occurs after December 31, 1997, other than as a result of
a Wyndham Delay, and the Patriot Average Closing Price is less than $27.50,
the Exchange Ratio would be subject to adjustment. As of December 9, 1997,
the average closing price of a Paired Share as reported on the NYSE over the
previous 20 trading days was $30.71. Management of the Patriot Companies do
not anticipate that the Patriot Average Closing Price, as calculated at the
Effective Time of the Merger (assuming a closing of January 5, 1998), will
result in an adjustment to the Exchange Ratio.
In connection with the Merger, options to purchase approximately 1,017
shares of Wyndham Common Stock which were issued by Wyndham to certain
officers and employees of Wyndham will be converted to options to purchase
1,395 Paired Shares. Such options to purchase Paired Shares will vest
immediately upon consummation of the Merger and become exercisable in full.
The stated exercise prices will be adjusted to reflect the Exchange Ratio.
The excess of the estimated value of a Paired Share on the date the Merger
is consummated (based upon the closing price on April 11, 1997, the business
day prior to the date of execution of the Original Merger Agreement, of Old
Patriot REIT's Common Stock on the NYSE of $22.25 and the Exchange Ratio)
over the stated exercise price of the options (as adjusted for the Exchange
Ratio) is reflected as additional purchase consideration for the Merger.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial public offering. In connection with the Merger, Patriot REIT will
acquire these notes at their historical cost, which approximates their
estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that
are deferred until certain operating criteria, as defined per the
management and loan agreement, are met. Such deferred management fees will
be acquired by Patriot REIT at their stated historical cost, which
approximates their estimated fair value, as a result of the Merger.
S-83
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CROW
REIT ASSETS
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $213,868 $34,235 $ 31,845 $ -- $279,948
Racecourse facility,
hotel and land lease
revenue............... 5,945 -- 9,404 2,365 (D) 17,714
Interest and other
income................ 2,297 -- 500 -- 2,797
-------- ------- --------- --------- --------
Total revenue.......... 222,110 34,235 41,749 2,365 300,459
-------- ------- --------- --------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,693 1,325 9,806 -- 16,824
General and
administrative........ 6,797 100 (E) 200 (E) -- 7,097
Interest expense....... 64,518 23,492 (F) 18,342 (F) 18,285 (F) 124,637
Real estate and
personal property
taxes and casualty
insurance............. 22,488 3,783 8,271 -- 34,542
Depreciation and
amortization.......... 62,723 12,033 (G) 19,019 (G) -- 93,775
-------- ------- --------- --------- --------
Total expenses......... 162,219 40,733 55,638 18,285 276,875
-------- ------- --------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 59,891 (6,498) (13,889) (15,920) 23,584
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,559 -- 363 (5,045)(H) 2,877
-------- ------- --------- --------- --------
Income (loss) before
income tax provision
and minority
interests.............. 67,450 (6,498) (13,526) (20,965) 26,461
Income tax provision... (170) -- -- (175)(I) (345)
-------- ------- --------- --------- --------
Income (loss) before mi-
nority interests....... 67,280 (6,498) (13,526) (21,140) 26,116
Minority interest in
the Patriot REIT Part-
nership............... (9,032) 682 1,420 4,381 (J) (2,549)
Minority interest in
consolidated subsidi-
aries................. (1,832) -- -- -- (1,832)
-------- ------- --------- --------- --------
Net income (loss)
applicable to common
shareholders .......... $ 56,416 $(5,816) $ (12,106) $ (16,759) $ 21,735 (K)
======== ======= ========= ========= ========
Net income per common
share(L)............... $ 0.75 $ 0.21 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
year ended December 31, 1996 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leased that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel and Sheraton City Centre); and the CHC Hotels; (v) the mortgage
notes to affiliates of CHC Lease Partners have been funded; (vi) Patriot
REIT replaced the Old Line of Credit with the Revolving Credit Facility
and the Term Loan; (vii) Patriot REIT acquired the Participating Note;
(viii) the Offering of 10,580,000 Paired Shares was completed; and (ix)
Patriot Operating Company acquired eight leases from CHC Lease Partners
and re-leased such hotels to Patriot Operating Company. In addition, the
pro forma results of operations assume the 24 hotels acquired during 1996
and the private placement and public offering of equity securities
completed by Old Patriot REIT during 1996 had occurred as of January 1,
1996. See page S-57.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for nine hotels for
the year ended December 31, 1996 (excluding the La Guardia Airport Hotel
which was closed for renovation during 1996).
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Merger had been consummated at the beginning of the period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
S-84
<PAGE>
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Merger, the adjustment represents interest expense on current debt
obligations and interest expense related to certain capital lease
obligations which are expected to be assumed in connection with the
Merger. Patriot REIT expects to refinance substantially all of Wyndham's
long-term debt with borrowings under the Revolving Credit Facility and
Term Loan. Patriot REIT will pay an estimated $15,875 in mortgage
prepayment penalties. This amount will be reported as an extraordinary
item in Patriot REIT's results of operations following the completion of
the Wyndham Transactions and has been reflected as an adjustment to
retained earnings for pro forma presentation purposes. In addition, the
Revolving Credit Facility and Term Loan generally have more favorable
interest rates than the debt expected to be repaid. The deferred loan
costs are being amortized using the straight-line method over the terms of
the loans. Interest expense incurred on the Revolving Credit Facility and
Term Loan borrowings assumes an average interest rate of 7.333%
(representing LIBOR plus 1.85%). An increase of 0.25% in the interest rate
would increase pro forma interest expense to $128,911, decrease net income
applicable to common shareholders to $17,909 and decrease net income per
common share to $0.17, based on 102,543 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E . These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in losses of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.5%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 13.8%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares), pro forma interest expense would
decrease by $7,333, net income would be $28,392 and net income per common
share would be $0.27, based on 105,758 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 102,543 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares of common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.22 per common share. The impact of Statement 128 on
the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
S-85
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT CROW ASSETS
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $172,682 $30,857 $ 26,438 $ -- $229,977
Racecourse facility,
hotel and land lease
revenue .............. 3,504 -- 14,482 1,773 (D) 19,759
Interest and other
income................ 4,043 -- -- -- 4,043
-------- ------- -------- -------- --------
Total revenue.......... 180,229 30,857 40,920 1,773 253,779
-------- ------- -------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,535 -- 14,482 -- 20,017
General and
administrative........ 6,937 50 (E) 150 (E) -- 7,137
Interest expense....... 48,329 17,907 (F) 11,788 (F) 16,390 (F) 94,414
Real estate and
personal property
taxes and casualty
insurance............. 17,812 3,018 6,236 -- 27,066
Depreciation and
amortization.......... 47,565 9,025 (G) 14,264 (G) -- 70,854
-------- ------- -------- -------- --------
Total expenses......... 126,178 30,000 46,920 16,390 219,488
-------- ------- -------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 54,051 857 (6,000) (14,617) 34,291
Equity in earnings of
unconsolidated
subsidiaries.......... 4,488 -- 120 1,419 (H) 6,027
-------- ------- -------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 58,539 857 (5,880) (13,198) 40,318
Income tax provision... (125) -- -- (131) (I) (256)
-------- ------- -------- -------- --------
Income (loss) before mi-
nority interests....... 58,414 857 (5,880) (13,329) 40,062
Minority interest in
the Patriot REIT
Partnership........... (7,803) (90) 617 3,266 (J) (4,010)
Minority interest in
consolidated subsidi-
aries................. (1,869) -- -- -- (1,869)
-------- ------- -------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ 48,742 $ 767 $ (5,263) $(10,063) $ 34,183 (K)
======== ======= ======== ======== ========
Net income per common
share(L)............... $ 0.64 $ 0.33 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
nine months ended September 30, 1997 assuming the following transactions
had occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leases that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel and Sheraton City Centre) and the CHC Hotels; (v) the mortgage notes
to affiliates of CHC Lease Partners have been funded; (vi) Patriot REIT
replaced the Old Line of Credit with the Revolving Credit Facility and the
Term Loan; (vii) Patriot Operating Company acquired the Participating
Note; (viii) the Offering of 10,580,000 Paired Shares was completed; and
(ix) Patriot REIT acquired eight leases from CHC Lease Partners and re-
leased such hotels to Patriot Operating Company. See page S-60.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. The pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for ten hotels for
the nine months ended September 30, 1997.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Merger had been consummated at the beginning of the period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Merger, the adjustment represents interest expense
S-86
<PAGE>
on current debt obligations and interest expense related to certain capital
lease obligations which are expected to be assumed in connection with the
Merger. Patriot REIT expects to refinance Wyndham's long-term debt with
borrowings under the Revolving Credit Facility and Term Loan. Patriot REIT
will pay approximately $15,875 in mortgage prepayment penalties. This amount
will be reported as an extraordinary item in Patriot REIT's results of
operations following the completion of the Wyndham Transactions and has been
reflected as an adjustment to retained earnings for pro forma presentation
purposes. In addition, the Revolving Credit Facility and Term Loan generally
have more favorable interest rates than the debt expected to be repaid. The
deferred loan costs are being amortized using the straight-line method over
the terms of the loans. Interest expense incurred on the Revolving Credit
Facility and Term Loan borrowings assumes an average interest rate of 7.453%
(representing LIBOR plus 1.85%). An increase of 0.25% in the interest rate
would increase pro forma interest expense to 97,321, decrease net income
applicable to common shareholders to $31,581 and decrease net income per
common share to $0.31, based on 103,117 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in income of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 10.5%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 13.8%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares) pro forma interest expense would
decrease by $5,590, net income would be $39,317 and net income per common
share would be $0.37, based on 106,332 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 103,117 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issue Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.35 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
S-87
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $338,448 $ 64,362 $128,248 $16,228 $ -- $ 547,286
Other hotel revenue.... 233,844 44,303 40,920 10,310 -- 329,377
Racecourse facility
revenue............... 51,946 -- -- -- -- 51,946
Management fee, service
fee and reimbursement
income................ 13,522 -- 41,978 -- (6,275)(E) 49,225
Interest and other
income................ 10,012 -- 2,250 -- -- 12,262
-------- -------- -------- ------- -------- ---------
Total revenue.......... 647,772 108,665 213,396 26,538 (6,275) 990,096
-------- -------- -------- ------- -------- ---------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 241,792 44,914 71,913 9,949 -- 368,568
Racecourse facility
operations............ 46,351 -- -- -- -- 46,351
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 11,143 -- 32,666 -- -- 43,809
General and
administrative........ 71,700 10,495 18,276 3,305 101 (F) 103,877
Ground lease and hotel
lease expense ........ 733 -- -- -- 11,769 (G) 12,502
Repair and
maintenance........... 29,897 4,884 6,066 1,144 -- 41,991
Utilities.............. 26,843 4,351 4,585 1,055 -- 36,834
Marketing.............. 51,238 8,375 9,226 1,738 -- 70,577
Management fees........ 9,469 5,349 -- 926 (6,275)(E) 9,469
Depreciation and
amortization.......... 10,348 -- 13,016(H) -- 6,061 (H) 29,425
Participating lease
payments (I).......... 172,119 34,235 31,845 9,019 -- 247,218
Interest expense....... 1,393 -- -- -- -- 1,393
Real estate and
personal property
taxes and insurance... 398 -- 449 -- -- 847
-------- -------- -------- ------- -------- ---------
Total expenses......... 673,424 112,603 188,042 27,136 11,656 1,012,861
-------- -------- -------- ------- -------- ---------
Income (loss) before
income tax provision
and minority
interests.............. (25,652) (3,938) 25,354 (598) (17,931) (22,765)
Income tax (provision)
benefit............... (760) -- (4,177)(J) -- 12,469 (J) 7,532
-------- -------- -------- ------- -------- ---------
Income (loss) before mi-
nority interests....... (26,412) (3,938) 21,177 (598) (5,462) (15,233)
Minority interest in
the Patriot Operating
Company Partnership... 3,830 441 (K) (2,372)(K) 67 (K) (825) (K) 1,141
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- 5,045 (L) 5,045
-------- -------- -------- ------- -------- ---------
Net income (loss)
applicable to common
shareholders........... $(22,582) $ (3,497) $ 18,805 $ (531) $ (1,242) $ (9,047)
======== ======== ======== ======= ======== =========
Net loss per common
share(M)............... $ (0.30) $ (0.09)
======== =========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot Operating
Company for the year ended December 31, 1996 assuming the following
transactions had occurred at the beginning of the period presented:
(i) the Cal Jockey Merger and the transactions related thereto; (ii) the
Paine Webber Land Sale was consummated, the PaineWebber affiliate leased
that portion of the land upon which the Racecourse is situated to Patriot
REIT and Patriot REIT subleased this land and the related improvements to
Patriot Operating Company; (iii) Patriot REIT leased certain land to
Borders, Inc.; (iv) Patriot Operating Company completed the Grand Heritage
Acquisition and
S-88
<PAGE>
acquired PAH RSI Lessee; (v) Patriot REIT acquired the Recent Acquisitions
(except for the Park Shore Hotel and the Sheraton City Centre) and the CHC
Hotels and leased 21 of such hotels to Patriot Operating Company; (vi) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vii)
Patriot REIT replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; (viii) Patriot Operating Company acquired the
Participating Note; (ix) the Offering of 10,580,000 Paired Shares was
completed; (x) the GAH Acquisition was completed; and (xi) the CHCI Merger
was completed. See page S-63.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred at the
beginning of the period presented. One of the hotels was closed during 1996
due to renovation. As a result, the pro forma results of operations for the
Crow Assets Acquisition reflects the results of operations for nine hotels
for the year ended December 31, 1996.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Merger and the Related Transactions had been consummated as of
January 1, 1996. The pro forma adjustments are based on the historical
results of operations of Wyndham as of December 31, 1996 adjusted for
certain transactions, including the acquisition of ClubHouse, all hotels
and management contracts acquired during 1996 and Wyndham's initial public
offering and related transactions, as if such transactions had occurred as
of January 1, 1996.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels currently leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International as of January 1, 1996.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
Wyndham International and managed by a New Non-Controlled Subsidiary.
(F) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200 and the elimination of certain
other expenses of $99.
(G) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the straight-
line method over the 14-year average remaining term of the related
management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the period
presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.2%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.5%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 102,543 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.09 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-89
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $279,595 $58,044 $108,868 $12,659 $ -- $459,166
Other hotel revenue.... 182,889 35,548 35,502 7,649 -- 261,588
Racecourse facility
revenue............... 33,399 -- -- -- -- 33,399
Management fee, service
fee and reimbursement
income................ 14,701 -- 35,785 -- (4,937)(E) 45,549
Interest and other
income................ 6,374 -- 2,133 -- -- 8,507
-------- ------- -------- ------- -------- --------
Total revenue.......... 516,958 93,592 182,288 20,308 (4,937) 808,209
-------- ------- -------- ------- -------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 187,784 37,199 49,712 7,707 -- 282,402
Racecourse facility
operations............ 30,114 -- -- -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 12,568 -- 27,763 -- -- 40,331
General and
administrative........ 54,225 9,324 15,539 2,382 200 (F) 81,670
Ground lease and hotel
lease expense......... 523 -- -- -- 16,255 (G) 16,778
Repair and
maintenance........... 24,230 4,005 5,366 911 -- 34,512
Utilities.............. 20,341 3,745 4,918 837 -- 29,841
Marketing.............. 41,734 6,743 9,294 1,324 -- 59,095
Management fees........ 9,657 4,279 -- 658 (4,937)(E) 9,657
Depreciation and
amortization.......... 5,449 -- 10,739 (H) -- 4,517 (H) 20,705
Participating lease
payments(I)........... 138,309 30,857 26,438 7,006 -- 202,610
Interest expense....... 936 -- -- -- -- 936
Real estate and
personal property
taxes and casuality
insurance ............ 290 -- -- -- -- 290
-------- ------- -------- ------- -------- --------
Total expenses......... 526,160 96,152 149,769 20,825 16,035 808,941
-------- ------- -------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. (9,202) (2,560) 32,519 (517) (20,972) (732)
Income tax (provision)
benefit............... -- -- (9,240)(J) -- 5,763 (J) (3,477)
-------- ------- -------- ------- -------- --------
Income (loss) before mi-
nority interests....... (9,202) (2,560) 23,279 (517) (15,209) (4,209)
Minority interest in
the Patriot Operating
Company Partnership... 1,334 287 (K) (2,607)(K) 58 (K) 1,558 (K) 630
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (1,419)(L) (1,419)
-------- ------- -------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ (7,868) $(2,273) $ 20,672 $ (459) $(15,070) $ (4,998)
======== ======= ======== ======= ======== ========
Net loss per common
share(M)............... $ (0.10) $ (0.05)
======== ========
</TABLE>
See notes on following page.
S-90
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(A) Represents the pro forma results of operations of Patriot Operating
Company for the nine months ended September 30, 1997 assuming the
following transactions had occurred at the beginning of the period
presented: (i) the Cal Jockey Merger and the transactions related thereto
(ii) the PaineWebber Land Sale was consummated, the PaineWebber affiliate
leased that portion of the land upon which the Racecourse is situated to
Patriot REIT and Patriot REIT subleased this land and the related
improvements to Patriot Operating Company; (iii) Patriot REIT leased
certain land to Borders, Inc.; (iv) Patriot Operating Company completed
the Grand Heritage Acquisition and acquired PAH RSI Lessee; (v) Patriot
REIT acquired the Recent Acquisitions (except for the Park Shore Hotel and
the Sheraton City Centre) and the CHC Hotels and leased 21 of such hotels
to Patriot Operating Company; (vi) the mortgage notes to affiliates of CHC
Lease Partners have been funded; (vii) Patriot REIT replaced the Old Line
of Credit with the Revolving Credit Facility and the Term Loan; (viii)
Patriot Operating Company acquired the Participating Note; (ix) the
Offering of 10,580,000 Paired Shares was completed; (x) the GAH
Acquisition was completed; and (xi) the CHCI Merger was completed. See
page S-60.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred as of
January 1, 1996. The pro forma results of operations for the Crow Assets
Acquisition reflects the results of operations for ten hotels for the nine
months ended September 30, 1997.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Merger had been consummated at the beginning of the period
presented. The pro forma adjustments are based on the historical results
of operations of Wyndham as of September 30, 1997 adjusted for certain
transactions, including the acquisition of ClubHouse and all hotels and
management contracts acquired during the first nine months of 1997, as if
such transactions had occurred as of January 1, 1996.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels currently leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International as of January 1, 1996.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
Wyndham International and managed by a New Non-Controlled Subsidiary.
(F) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200.
(G) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 11.2%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 14.5%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 103,117 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be a net loss of $0.05 per common share. The
impact of Statement 128 on the calculation of diluted earnings per share is
not expected to differ significantly from the earnings per share amounts
reported.
S-91
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to Lessees or to Patriot Operating Company. The
Combined Lessees subsequent to (i) the Wyndham Transactions, (ii) the Cal
Jockey Merger and the transactions related thereto, (iii) the Grand Heritage
Acquisition (which included the acquisition of Grand Heritage Leasing, L.L.C.
which leased three hotels from Patriot REIT), (iv) the acquisition of PAH RSI
Lessee (which included the acquisition of eight Patriot REIT hotel leases);
and (v) the GAH Acquisition and the CHCI Merger (which included the
acquisition of 25 Patriot REIT hotel leases from CHC Lease Partners) consist
of NorthCoast Lessee which leases 11 hotels (excluding the Park Shore Hotel),
Doubletree Lessee which leases four hotels, and Metro Lease Partners which
leases one hotel. Patriot REIT also leases two hotels to Crow Hotel Lessee,
Inc. (the Wyndham Garden Hotel-Midtown and the Wyndham Greenspoint Hotel).
Subsequent to the completion of the Wyndham Transactions, Patriot REIT expects
to terminate its leases with Crow Hotel Lessee, Inc. and re-lease such hotels
to Wyndham International. The Participating Leases provide for staggered terms
of one to twelve years and the payment of the greater of base or participating
rent, plus certain additional charges, as applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the nine
months ended September 30, 1997 are presented as if the 16 hotels that Patriot
REIT leases to the Combined Lessees pursuant to Participating Leases
(excluding the Park Shore Hotel) had been leased as of January 1, 1996. The 25
hotels leased to CHC Lease Partners, the eight hotels leased to PAH RSI
Lessee, the three hotels leased to Grand Heritage Leasing, L.L.C. and the two
hotels leased to Crow Hotel Lessee, Inc. are assumed to have been leased to
Wyndham International and, therefore, have been eliminated from the Pro Forma
Condensed Combined Statements of Operations for the Combined Lessees. The pro
forma information is based in part upon the Statements of Operations of
NorthCoast Lessee filed with Old Patriot REIT's Annual Report on Form 10-K for
the year ended December 31, 1996 and the Statements of Operations of
NorthCoast Lessee filed with Patriot REIT's and Patriot Operating Company's
Joint Quarterly Report on Form 10-Q for the nine months ended September 30,
1997 all of which are incorporated by reference herein and the Pro Forma
Condensed Combined Statement of Operations of the Combined Lessees located
elsewhere in this Supplement. In management's opinion, all material
adjustments necessary to reflect the effects of these transactions have been
made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of January 1, 1996, nor do they purport to represent the results of
operations for future periods. Further, the unaudited Pro Forma Condensed
Combined Statement of Operations for the interim period ended September 30,
1997 is not necessarily indicative of the results of operations for the full
year.
S-92
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room................................................ $72,182 $59,441
Food and beverage................................... 28,499 22,355
Telephone and other................................. 5,906 4,852
------- -------
Total revenue.................................... 106,587 86,648
------- -------
Expenses:
Departmental costs and expenses..................... 44,615 34,690
General and administrative.......................... 9,389 7,138
Ground lease expense................................ 2,496 985
Repair and maintenance.............................. 5,526 4,161
Utilities........................................... 4,380 3,201
Marketing........................................... 7,431 6,171
Participating lease payments(A)..................... 32,730 27,367
------- -------
Total expenses................................... 106,567 83,713
------- -------
Income before lessee income (expense)................ 20 2,935
------- -------
Dividend and interest income(B)...................... 142 1,087
Management fees(C)................................... (2,553) (2,444)
Lessee general and administrative(D)................. (478) (478)
------- -------
(2,889) (1,835)
------- -------
Net income (loss).................................... $(2,869) $ 1,100
======= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
S-93
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL ADJUSTED FOR THE WHG MERGER
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
On September 30, 1997, Patriot REIT, Patriot Operating Company and WHG
entered into the WHG Merger Agreement providing for the merger of a newly-
formed subsidiary of Patriot Operating Company (and subsequent to the Merger,
Wyndham International) with and into WHG, with WHG being the surviving
corporation. As a result of the WHG Merger, Wyndham International will acquire
the Condado Plaza Hotel & Casino, a 50% interest in the El San Juan Hotel &
Casino and a 23.3% interest in the El Conquistador, all of which are located
in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc.,
the management company for the three hotels and the Las Casitas Village at El
Conquistador.
Under the terms of the WHG Merger Agreement, each share of WHG Common Stock
generally will be converted into the right to receive 0.784 Paired Shares;
provided, however, that in the event that (i) the Patriot/WHG Average Closing
Price is greater than $31.25 and the effective time of the WHG Merger is
before February 1998, the WHG Exchange Ratio will be adjusted such that the
WHG Exchange Ratio Product equals $24.50, (ii) the Patriot/WHG Average Closing
Price is greater than $31.75 and the effective time of the WHG Merger is in
February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $24.89, (iii) the Patriot/WHG Average Closing
Price is greater than $32.25 and the effective time of the WHG Merger is after
February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $25.28, (iv) the Patriot/WHG Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50,
the WHG Exchange Ratio will be adjusted such that the WHG Exchange Ratio
Product equals $20.00, or (v) the Patriot/WHG Average Closing Price is less
than $19.50, the WHG Exchange Ratio will equal 1.026, provided, however, that
in such circumstances WHG has the right, waivable by it, to terminate the WHG
Merger Agreement.
In addition, each issued and outstanding share of WHG Series B Convertible
Preferred Stock will be converted into the right to receive that number of
Paired Shares that the holder of such shares of WHG Series B Convertible
Preferred Stock would have the right to receive assuming conversion of such
shares, together with any accrued and unpaid dividends thereon, into shares of
WHG Common Stock immediately prior to the effective time of the WHG Merger.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotel and related improvements and other
assets and liabilities owned by WHG are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of WHG has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of WHG will materially change; however,
the allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transaction. Therefore, the allocation reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
In connection with the WHG Merger, Patriot Operating Company is currently in
negotiations to acquire additional interests in the El San Juan Hotel &
Casino, the El Conquistador, Williams Hospitality Group, Inc., and WKA
Development S.E., and to acquire an option to buy certain property attached to
the Condado Plaza Hotel & Casino. No assurance can be given that any of these
transactions will be consummated and the following unaudited Pro Forma
Financial Statements do not reflect adjustments for these transactions.
The following unaudited Pro Forma Condensed Combined Statement of Operations
as adjusted for the WHG Merger for the year ended December 31, 1996 and the
nine months ended September 30, 1997 are
S-94
<PAGE>
derived from (i) the Patriot REIT and Patriot Operating Company Pro Forma
Condensed Combined Statements of Operations as adjusted for the Wyndham
Transactions for the year ended December 31, 1996 and the nine months ended
September 30, 1997 included elsewhere in this Supplement and (ii) the
Consolidated Statements of Operations of WHG for the year ended June 30, 1997
and the three months ended September 30, 1997 filed with the Patriot
Companies' Joint Current Report on Form 8-K dated December 10, 1997 all of
which are incorporated by reference herein. As a result of the WHG Merger, WHG
will become a wholly owned subsidiary of Wyndham International. Consequently
the WHG Merger has minimal impact on the pro forma operating results of
Patriot REIT. As a result, separate unaudited Pro Forma Condensed Statements
of Operations for Patriot REIT, adjusted for the WHG Merger have not been
presented.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the WHG
Merger would have been assuming such transactions had been completed as of
January 1, 1996, nor do they purport to represent the results of operations
for future periods. Further, the unaudited Pro Forma Condensed Combined
Statement of Operations for the interim period ended September 30, 1997 is not
necessarily indicative of the results of operations for the full year.
S-95
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT WYNDHAM
REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $279,948 $ -- $(247,218)(C) $ 32,730
Hotel revenue........... -- 931,559 -- 931,559
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(D) 52,280
Management fee, service
fee and reimbursement
income................. -- 62,221 -- 62,221
Interest and other
income................. 2,797 14,346 (5,916)(E) 11,227
-------- ---------- --------- ----------
Total revenue........... 300,459 1,060,072 (270,514) 1,090,017
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 403,122 -- 403,122
Racecourse facility
operations............. -- 46,351 (5,611)(D) 40,740
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... -- 47,564 -- 47,564
General and
administrative......... 7,097 110,110 (34)(E) 117,173
Ground lease and hotel
lease expense.......... 16,824 12,502 (11,769)(D) 17,557
Repair and maintenance.. -- 41,991 -- 41,991
Utilities............... -- 36,834 -- 36,834
Interest expense........ 124,637 4,866 (5,882)(E) 123,621
Real estate and personal
property taxes and
casualty insurance..... 34,542 847 -- 35,389
Marketing............... -- 73,533 -- 73,533
Management fees......... -- 9,469 -- 9,469
Depreciation and
amortization........... 93,775 40,943 -- 134,718
Participating lease
payments............... -- 247,218 (247,218)(C) --
-------- ---------- --------- ----------
Total expenses.......... 276,875 1,075,350 (270,514) 1,081,711
-------- ---------- --------- ----------
Income (loss) before
equity in earnings
(losses) of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 23,584 (15,278) -- 8,306
Equity in earnings of
unconsolidated
subsidiaries........... 2,877 (3,407) 5,045 (F) 4,515
-------- ---------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 26,461 (18,685) 5,045 12,821
Income tax (provision)
benefit................ (345) 4,647 -- 4,302
-------- ---------- --------- ----------
Income (loss) before
minority interests...... 26,116 (14,038) 5,045 17,123
Minority interests in
the Patriot
Partnerships........... (2,428) 1,359 -- (1,069)
Minority interest in
consolidated
subsidiaries .......... (1,832) 1,341 (5,045)(F) (5,536)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
shareholders............ $ 21,856 $ (11,338) $ -- $ 10,518
======== ========== ========= ==========
Net income (loss) per
common Paired Share(G).. $ 0.20 $ (0.11) $ 0.09
======== ========== ==========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the year ended December 31, 1996 as
adjusted for the Wyndham Transactions. See page S-84. Minority interest in
the Patriot REIT Partnership has been decreased by $121 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 10.0%. The estimated minority interest
percentage prior to the WHG Merger is approximately 10.5%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the year ended
December 31, 1996 as adjusted for the Wyndham Transactions. See page S-
101.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham International
(excluding the Sheraton City Centre).
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets are assumed to be acquired by Patriot Operating Company, the
elimination of $4,712 of interest income and expense related to the
Subscription Notes issued to Patriot Operating Company in connection with
the subscription for shares of Patriot Operating Company Common Stock and
Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(F) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 107,547 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares and the conversion of
WHG Series B Convertible Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.10 per common Paired Share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
S-96
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $229,977 $ -- $(202,610)(C) $ 27,367
Hotel revenue............ -- 763,616 -- 763,616
Racecourse facility
revenue, hotel and land
lease revenue........... 19,759 33,399 (19,501)(D) 33,657
Management fee, service
fee and reimbursement
income.................. -- 56,838 -- 56,838
Interest and other
income.................. 4,043 10,524 (2,306)(E) 12,261
-------- -------- --------- --------
Total revenue............ 253,779 864,377 (224,417) 893,739
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 307,597 -- 307,597
Racecourse facility
operations.............. -- 30,114 (3,246)(D) 26,868
Direct operating costs of
management company,
service department, and
reimbursement expenses.. -- 43,427 -- 43,427
General and
administrative.......... 7,137 87,322 (24)(E) 94,435
Ground lease and hotel
lease expense........... 20,017 16,778 (16,255)(D) 20,540
Repair and maintenance... -- 34,512 -- 34,512
Utilities................ -- 29,841 -- 29,841
Interest expense......... 94,414 3,291 (2,282)(E) 95,423
Real estate and personal
property taxes and
casualty insurance...... 27,066 290 -- 27,356
Marketing................ -- 61,334 -- 61,334
Management fees.......... -- 9,657 -- 9,657
Depreciation and
amortization............ 70,854 29,489 -- 100,343
Participating lease
payments................ -- 202,610 (202,610)(C) --
-------- -------- --------- --------
Total expenses........... 219,488 856,262 (224,417) 851,333
-------- -------- --------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 34,291 8,115 -- 42,406
Equity in earnings of
unconsolidated
subsidiaries............ 6,027 417 (1,419)(F) 5,025
-------- -------- --------- --------
Income before income tax
provision and minority
interests................ 40,318 8,532 (1,419) 47,431
Income tax (provision)
benefit................. (256) (3,477) -- (3,733)
-------- -------- --------- --------
Income before minority
interests................ 40,062 5,055 (1,419) 43,698
Minority interests in the
Patriot Partnerships.... (3,819) (39) -- (3,858)
Minority interest in
consolidated
subsidiaries............ (1,869) (4,692) 1,419 (F) (5,142)
-------- -------- --------- --------
Net income applicable to
common shareholders...... $ 34,374 $ 324 $ -- $ 34,698
======== ======== ========= ========
Net income per common
Paired Share(G).......... $ 0.31 $ 0.01 $ 0.32
======== ======== ========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the nine months ended September 30, 1997 as
adjusted for the Wyndham Transactions. See page S-86. Minority interest in
the Patriot REIT Partnership has been decreased by $191 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 10.0%. The estimated minority interest
percentage prior to the WHG Merger is approximately 10.5%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the nine months
ended September 30, 1997 appearing on page S-102.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham International
(excluding the Sheraton City Centre).
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Patriot Operating Company, the elimination
of $1,450 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(F) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 108,178 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares and the conversion of
WHG Series B Convertible Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.34 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-97
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the WHG Merger had occurred as of September 30, 1997. The Pro
Forma Condensed Combined Balance Sheet is also derived from the Patriot REIT
and Patriot Operating Company Pro Forma Condensed Combined Balance Sheet as
adjusted for the Wyndham Transactions as of September 30, 1997 included
elsewhere in this Supplement.
Such pro forma information is based in part upon WHG's Consolidated Balance
Sheet as of September 30, 1997, Wyndham's Consolidated Balance Sheet as of
September 30, 1997, and Patriot REIT's and Patriot Operating Company's
Combined Balance Sheet as of September 30, 1997 and should be read in
conjunction with the financial statements presented elsewhere in this
Supplement and filed with WHG's, Wyndham's and the Patriot Companies'
Quarterly Reports on Form 10-Q for the nine months ended September 30, 1997
and the Patriot Companies' Joint Current Report on Form 8-K dated December 8,
1997 all of which are incorporated by reference herein. In management's
opinion, all material adjustments necessary to reflect the effect of these
transactions have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of WHG at their estimated fair market
values and the elimination of WHG's historical shareholders' equity. The fair
market values of the assets and liabilities of WHG have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of WHG will materially change; however, the allocations of
purchase costs are subject to final determination based upon estimates and
other evaluations of fair market value as of the close of the transaction.
Therefore, the allocations reflected in the following unaudited Pro Forma
Condensed Combined Balance Sheet may differ from the amounts ultimately
determined. The following unaudited Pro Forma Condensed Combined Balance Sheet
is not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of September 30, 1997,
nor does it purport to represent the future financial position of Patriot REIT
and Wyndham International as adjusted for the WHG Merger.
S-98
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements............ $2,433,525 $ 49,050 $ 31,641 (C) $2,514,216
Mortgage notes and other
receivables from
unconsolidated
subsidiaries............ 74,053 1,731 40,308 (D) 116,092
Notes and other
receivables from
affiliates.............. 24,800 -- -- 24,800
Notes receivable......... 17,844 -- -- 17,844
Investment in
unconsolidated
subsidiaries............ 16,153 29,791 (21,399)(E) 24,545
Cash and cash
equivalents............. 36,334 18,941 -- 55,275
Restricted cash.......... 39,132 -- -- 39,132
Accounts receivable,
net..................... 54,222 3,454 -- 57,676
Goodwill................. 460,549 8,613 7,628 (F) 476,790
Deferred expenses, net... 24,663 -- -- 24,663
Deferred acquisition
costs................... 39,970 -- -- 39,970
Management contract
costs................... 110,246 -- 43,567 (G) 153,813
Trade name and franchise
costs................... 93,050 -- -- 93,050
Prepaid expenses and
other assets............ 52,329 6,772 -- 59,101
Deferred income taxes.... 1,496 -- -- 1,496
---------- -------- -------- ----------
Total assets............ $3,478,366 $118,352 $101,745 $3,698,463
========== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes................... $1,472,911 $ 22,363 $ -- $1,495,274
Notes and other
liabilities............. -- 5,032 -- 5,032
Accounts payable and
accrued expenses........ 96,133 11,204 -- 107,337
Dividends and
distributions payable... 21,727 -- -- 21,727
Sales tax payable........ 2,968 -- -- 2,968
Deferred income tax
liability............... 76,425 2,192 -- 78,617
Deposits................. 4,033 -- -- 4,033
Due to unconsolidated
subsidiaries............ 5,904 -- -- 5,904
Minority interests in the
Patriot Partnerships.... 264,862 -- -- 264,862
Minority interest in
consolidated
subsidiaries............ 32,112 20,410 -- 52,522
Shareholders' equity:
Preferred stock......... 44 3 (3)(H) 44
Common stock............ 1,906 61 39 (H) 2,006
Paid-in capital......... 1,649,054 17,293 141,503 (I) 1,807,850
Unearned stock compensa-
tion, net.............. (15,075) -- -- (15,075)
Notes receivable from
stockholders........... (17,138) -- -- (17,138)
Receivable from affili-
ates................... (1,229) -- -- (1,229)
Retained earnings....... (116,271) 39,794 (39,794)(I) (116,271)
---------- -------- -------- ----------
Total shareholders' eq-
uity................... 1,501,291 57,151 101,745 1,660,187
---------- -------- -------- ----------
Total liabilities and
shareholders' equity... $3,478,366 $118,352 $101,745 $3,698,463
========== ======== ======== ==========
</TABLE>
See notes on following page.
S-99
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE WHG MERGER
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1997
(A) Reflects the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of September 30, 1997, which reflects (i)
the Recent Transactions, including the Cal Jockey Merger; (ii) the
acquisition of the CHC Hotels, the GAH Acquisition and the CHCI Merger;
and (iii) the Wyndham Transactions. See page S-81.
(B) Represents the Consolidated Balance Sheet of WHG as of September 30, 1997.
(C) Represents adjustment for the purchase method of accounting whereby the
investment in the hotel property owned by WHG is adjusted to record the
assets at their estimated fair market values.
(D) Represents the reclassification of receivables from/advances to WHG
unconsolidated subsidiaries, stated at their historical cost which
approximates their fair value.
(E) Represents the following adjustments:
<TABLE>
<S> <C>
Adjustment to state investments in WHG unconsolidated subsid-
iaries at estimated fair market value....................... $ 18,909
Reclassify receivables from/advances to WHG unconsolidated
subsidiaries................................................ (40,308)
--------
$(21,399)
========
</TABLE>
(F) Represents purchase consideration in excess of fair market value of the
net assets of WHG.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by WHG are adjusted to their estimated fair
market values. WHG, through certain of its subsidiaries, holds management
contracts for the three resort hotels that it holds ownership interests
in. The contracts have remaining lives of 6 to 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents adjustments to record the exchange of WHG common stock for
Paired Shares and the conversion of the WHG Series B Convertible Preferred
Stock outstanding into its Paired Share equivalent. Pursuant to the WHG
Merger Agreement, WHG stockholders will receive 0.784 Paired Shares for
each share of WHG common stock held by them at the time of the WHG Merger,
subject to certain adjustments. At September 30, 1997, 6,050 shares of WHG
common stock were outstanding and were assumed to be exchanged for
approximately 4,743 Paired Shares (with a par value equal to $0.02 per
Paired Share) resulting in an adjustment to increase common stock.
At September 30, 1997, 300 shares of WHG Series B Convertible Preferred
Stock were outstanding. The preferred stock has a stated value of $10.00 per
share (plus adjustment for accrued, unpaid dividends) and is convertible
into WHG common stock based on a value of $9.00 per share for the WHG common
stock. The outstanding shares of WHG Series B Convertible Preferred Stock
were assumed to be converted into approximately 261 Paired Shares (which
represents the number of Paired Shares the holder of such preferred stock
would have the right to receive assuming conversion of such shares into WHG
common stock).
(I) Represents the following adjustments to shareholders' equity:
<TABLE>
<S> <C>
Purchase consideration for shares.............................. $158,899
Adjustment to preferred stock assumed to be exchanged for
Paired Shares................................................. (3)
Adjustment to common stock for Paired Shares issued............ (39)
Book value of WHG common stock................................. (61)
Book value of WHG paid-in capital.............................. (17,293)
--------
Adjustment to paid-in capital................................. 141,503
Elimination of WHG historical retained earnings................ (39,794)
Adjustment to preferred stock.................................. (3)
Adjustment to common stock..................................... 39
--------
Adjustment to shareholders' equity............................ $101,745
========
</TABLE>
S-100
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 547,286 $25,131 $ -- $ 572,417
Other hotel revenue.... 329,377 29,765 -- 359,142
Racecourse facility
revenue............... 51,946 -- -- 51,946
Management fee, service
fee and reimbursement
income................ 49,225 12,996 -- 62,221
Interest and other
income................ 12,262 2,084 -- 14,346
---------- ------- ------- ----------
Total revenue.......... 990,096 69,976 -- 1,060,072
---------- ------- ------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 368,568 34,554 -- 403,122
Racecourse facility
operations............ 46,351 -- -- 46,351
Direct operating costs
of management company,
service department,
and reimbursement
expenses.............. 43,809 3,755 -- 47,564
General and
administrative........ 103,877 6,233 -- 110,110
Ground lease and hotel
lease expense ........ 12,502 -- -- 12,502
Repair and
maintenance........... 41,991 -- -- 41,991
Utilities.............. 36,834 -- -- 36,834
Marketing.............. 70,577 2,956 -- 73,533
Management fees........ 9,469 -- -- 9,469
Depreciation and
amortization.......... 29,425 5,549 5,969 (C) 40,943
Participating lease
payments.............. 247,218 -- -- 247,218
Interest expense....... 1,393 3,473 -- 4,866
Real estate and
personal property
taxes and insurance... 847 -- -- 847
---------- ------- ------- ----------
Total expenses......... 1,012,861 56,520 5,969 1,075,350
---------- ------- ------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries........... (22,765) 13,456 (5,969) (15,278)
Equity in earnings of
unconsolidated
subsidiaries........... -- (2,896) (511)(D) (3,407)
---------- ------- ------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (22,765) 10,560 (6,480) (18,685)
Income tax (provision)
benefit............... 7,532 (2,152) (733)(E) 4,647
---------- ------- ------- ----------
Income (loss) before mi-
nority interests....... (15,233) 8,408 (7,213) (14,038)
Minority interest in
the Patriot Operating
Company Partnership... 1,141 -- 218 (F) 1,359
Minority interest in
consolidated
subsidiaries.......... 5,045 (3,704) -- 1,341
---------- ------- ------- ----------
Net income (loss)
applicable to common
shareholders........... $ (9,047) $ 4,704 $(6,995) $ (11,338)
========== ======= ======= ==========
Net loss per common
share(G)............... $ (0.09) $ (0.11)
========== ==========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the year ended December 31, 1996 which reflects adjustments for (i)
the Recent Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
and the CHCI Merger; and (iii) the Wyndham Transactions. See page S-88.
(B) Represents the historical consolidated results of operations of WHG for
the twelve months ended December 31, 1996 (excluding the adjustment to
reflect dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $907, amortization of
goodwill of $519 and amortization of management contracts of $4,543.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
(D) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(E) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
(F) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
10.7%. The estimated minority interest percentage prior to the WHG Merger
is approximately 11.2%.
(G) Pro forma earnings per share subsequent to the WHG Merger is computed
based on 107,547 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculation includes adjustments to reflect the impact of the conversion
of shares of Patriot Operating Company Preferred Stock into Paired Shares
and the conversion of WHG Series B Convertible Preferred Stock into Paired
Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be unchanged. The impact of Statement 128 on the calculation
of diluted earnings per share is not expected to differ significantly from
the earnings per share amounts reported.
S-101
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Room revenue............. $459,166 $19,627 $ -- $478,793
Other hotel revenue...... 261,588 23,235 -- 284,823
Racecourse facility
revenue................. 33,399 -- -- 33,399
Management fee, service
fee and reimbursement
income.................. 45,549 11,289 -- 56,838
Interest and other
income.................. 8,507 2,017 -- 10,524
-------- ------- ------- --------
Total revenue............ 808,209 56,168 -- 864,377
-------- ------- ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations.............. 282,402 25,195 -- 307,597
Racecourse facility
operations.............. 30,114 -- -- 30,114
Direct operating costs of
management company,
service department, and
reimbursement expenses.. 40,331 3,096 -- 43,427
General and
administrative.......... 81,670 6,652 (1,000)(C) 87,322
Ground lease and hotel
lease expense........... 16,778 -- -- 16,778
Repair and maintenance... 34,512 -- -- 34,512
Utilities................ 29,841 -- -- 29,841
Marketing................ 59,095 2,239 -- 61,334
Management fees.......... 9,657 -- -- 9,657
Depreciation and
amortization............ 20,705 4,412 4,372 (D) 29,489
Participating lease
payments................ 202,610 -- -- 202,610
Interest expense......... 936 2,355 -- 3,291
Real estate and personal
property taxes and
casualty insurance ..... 290 -- -- 290
-------- ------- ------- --------
Total expenses........... 808,941 43,949 3,372 856,262
-------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries............ (732) 12,219 (3,372) 8,115
Equity in earnings of
unconsolidated
subsidiaries............ -- 822 (405)(E) 417
-------- ------- ------- --------
Income (loss) before
income tax provision and
minority interests....... (732) 13,041 (3,777) 8,532
Income tax (provision)
benefit................. (3,477) (3,336) 3,336 (F) (3,477)
-------- ------- ------- --------
Income (loss) before mi-
nority interests......... (4,209) 9,705 (441) 5,055
Minority interest in the
Patriot Operating
Company Partnership..... 630 -- (669)(G) (39)
Minority interest in
consolidated
subsidiaries............ (1,419) (3,273) -- (4,692)
-------- ------- ------- --------
Net income (loss)
applicable to common
shareholders............. $ (4,998) $ 6,432 $(1,110) $ 324
======== ======= ======= ========
Net income (loss) per
common share(H).......... $ (0.05) $ 0.01
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the nine months ended September 30, 1997 which reflects adjustments
for (i) the Recent Transactions, including the Cal Jockey Merger and the
related transactions; (ii) the acquisition of the CHC Hotels, the GAH
Acquisition and the CHCI Merger; and (iii) the Wyndham Transactions. See
page S-90.
(B) Represents the historical consolidated results of operations of WHG for
the nine months ended September 30, 1997 (excluding the adjustment to
reflect dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents adjustment to eliminate non-recurring WHG Merger related costs.
(D) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby by the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $678, amortization of
goodwill of $286 and amortization of management contracts of $3,408.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
S-102
<PAGE>
(E) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(F) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
(G) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
10.7%. The estimated minority interest percentage prior to the WHG Merger
is approximately 11.2%.
(H) Pro forma earnings per share subsequent to the WHG Merger is computed based
on 108,178 weighted average common shares and common share equivalents
outstanding for the period. The number of shares used for the calculation
includes adjustments to reflect the impact of the conversion of shares of
Patriot Operating Company Preferred Stock into Paired Shares and the
conversion of WHG Series B Convertible Preferred Stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be unchanged. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
S-103
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On December 2, 1997, Patriot REIT and Patriot Operating Company entered into
the Patriot/IHC Merger Agreement with IHC, pursuant to which IHC will merge
with and into Patriot REIT with Patriot REIT being the surviving corporation.
As a result of the Patriot/IHC Merger, Patriot REIT will acquire all of the
assets and liabilities of IHC, including IHC's portfolio of 222 owned, leased
or managed hotels located in the United States, Canada, the Caribbean and
Russia. Of IHC's portfolio, 40 hotels aggregating approximately 11,580 rooms
are owned or controlled by IHC, 90 hotels aggregating approximately 10,354
rooms are leased and 92 hotels aggregating approximately 23,183 rooms are
managed or subject to service agreements. IHC operates its hotels under a
variety of brand names, including Marriott(R), Embassy Suites(R), Hilton(TM),
Holiday Inn(R), Radisson(TM), Westin(R), Sheraton(TM), Doubletree(TM),
Residence Inn(TM), Hampton Inn(R), Comfort Inn(TM), Homewood Suites(TM) and
Colony(R). As a result of the Patriot/IHC Merger, Patriot REIT will assume or
refinance all of IHC's existing indebtedness, which totaled approximately
$776,000 as of September 30, 1997, will pay approximately $24,300 to buy out
options to purchase IHC Common Stock and assume certain severance obligations
of approximately $30,000.
Upon consummation of the Patriot/IHC Merger, and subject to proration as
described below, IHC stockholders may elect to convert their shares of IHC
Common Stock into the right to receive either (i) Patriot/IHC Cash
Consideration consisting of an amount of cash equal to $37.50 per share of IHC
Common Stock, or (ii) Paired Shares at the Patriot/IHC Exchange Ratio. The
Patriot/IHC Merger Agreement provides that, except under certain circumstances
involving the payment of cash to IHC stockholders who exercise dissenters'
appraisal rights in connection with the Patriot/IHC Merger, approximately 40%
of the IHC Outstanding Shares will be converted into the right to receive the
Patriot/IHC Cash Consideration and the remaining approximately 60% of the IHC
Outstanding Shares will be converted into the right to receive Paired Shares at
the Patriot/IHC Exchange Ratio. Accordingly, the Aggregate Patriot/IHC Cash
Consideration to be received by holders of IHC Common Stock who elect to
receive Patriot/IHC Cash Consideration generally will be an amount equal to 40%
of the IHC Outstanding Shares multiplied by $37.50, or an aggregate of
approximately $530,000 based on the number of shares of IHC Common Stock
outstanding as of December 1, 1997. The Aggregate Paired Share Consideration to
be received by holders of IHC Common Stock who elect to receive Paired Shares
in the Patriot/IHC Merger generally will equal 60% of the IHC Outstanding
Shares multiplied by the Patriot/IHC Exchange Ratio. Upon consummation of the
Patriot/IHC Merger, holders of outstanding options to acquire IHC Common Stock
will receive cash in an amount equal to the spread between the exercise price
of such options and $37.50, except that certain senior executives of IHC may
elect to have their options assumed by Patriot REIT.
The Patriot/IHC Merger Agreement provides that, in the event that the holders
of IHC Outstanding Shares elect to receive Patriot/IHC Cash Consideration with
respect to more than 14,168,500 shares of IHC Common Stock (approximately 40%
of the IHC Outstanding Shares), such holders will receive the Aggregate
Patriot/IHC Cash Consideration on a pro rata basis based on the respective
numbers of shares of IHC Common Stock with respect to which each such holder
has elected to receive Patriot/IHC Cash Consideration. Under such
circumstances, such holders' remaining shares of IHC Common Stock that are not
converted into the right to receive Patriot/IHC Cash Consideration will be
converted into the right to receive Paired Shares at the Patriot/IHC Exchange
Ratio. In the event that the aggregate number of shares of IHC Common Stock
with respect to which the holders thereof have elected to receive Paired Shares
at the Patriot/IHC Exchange Ratio is greater than approximately 60% of the IHC
Outstanding Shares, such holders will receive the Aggregate Paired Share
Consideration on a pro rata basis based on the respective numbers of shares of
IHC Common Stock with respect to which each such holder has elected to receive
Paired Shares. Under such circumstances, such holders' remaining shares of IHC
Common Stock that are not converted into the right to receive Paired Shares
will be converted into the right to receive Patriot/IHC Cash Consideration.
S-104
<PAGE>
Under the terms of the Patriot/IHC Merger Agreement and subject to proration
as described above, each issued and outstanding share of IHC Common Stock with
respect to which the holder thereof has made an election to receive Paired
Shares in the Patriot/IHC Merger generally will be converted into the right to
receive a number of Paired Shares equal to $37.50 divided by the Patriot/IHC
Average Closing Price. However, the Patriot/IHC Exchange Ratio is subject to
adjustment if the Patriot/IHC Average Closing Price is less than $27.97 or
greater than $34.186. If the Patriot/IHC Average Closing Price is less than
$27.97 but greater than or equal to $26.416, the Patriot/IHC Exchange Ratio
will be equal to 1.341. If the Patriot/IHC Average Closing Price is greater
than $34.186 but less than or equal to $37.294 ($38.848, if the Patriot/IHC
Merger is consummated after March 30, 1998), the Patriot/IHC Exchange Ratio
will be equal to 1.097. If the Patriot/IHC Average Closing Price is greater
than $37.294 ($38.848, if the Patriot/IHC Merger is consummated after March
30, 1998), the Patriot/IHC Exchange Ratio will be equal to $40.912 ($42.616,
if the Patriot/IHC Merger is consummated after March 30, 1998) divided by the
Patriot/IHC Average Closing Price. If the Patriot/IHC Average Closing Price is
less than $26.416, the Patriot/IHC Exchange Ratio will be equal to 1.341, but
IHC will have the right to terminate the Patriot/IHC Merger Agreement unless
Patriot REIT decides to increase the Patriot/IHC Exchange Ratio to an amount
equal to $35.424 divided by the Patriot/IHC Average Closing Price and in the
event Patriot REIT exercises such right, IHC will no longer have the right to
terminate the Patriot/IHC Merger Agreement.
Following the Patriot/IHC Merger, Patriot REIT, directly or through its
subsidiaries, will own the 40 IHC hotels and will lease such hotels to Wyndham
International. The 90 hotel leases acquired by Patriot REIT subsidiaries (of
which 88 were leased by IHC as of September 30, 1997) will be sub-leased to
Wyndham International. IHC's remaining 92 management and franchise contracts,
the IHC hotel management company and other hotel management-related assets
will be transferred to corporate subsidiaries of Patriot REIT (collectively,
the "Patriot/IHC Non-Controlled Subsidiaries"). Patriot REIT will own a 99%
non-voting interest and Wyndham International will own the 1% controlling
voting interest in each of the Patriot/IHC Non-Controlled Subsidiaries.
Therefore, the operating results of the Patriot/IHC Non-Controlled
Subsidiaries will be combined with those of Wyndham International for
financial reporting purposes. Patriot REIT will account for its investment in
the Patriot/IHC Non-Controlled Subsidiaries using the equity method of
accounting.
The Patriot Companies intend to enter into forward commitment arrangements
to place $200,000 of Paired Shares concurrent with the closing of the
Patriot/IHC Merger, the proceeds from which will be used to satisfy certain
cash requirements resulting from the Patriot/IHC Merger. Consummation of these
forward commitment arrangements is subject to various conditions and no
assurances can be given that the Patriot Companies will be successful in their
efforts to place $200,000 of Paired Shares concurrently with the closing of
the Patriot/IHC Merger.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by IHC are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of IHC has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of IHC will materially change; however,
the allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transaction. Therefore, the allocation reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
In addition, the Patriot Companies have entered into agreements to acquire
an aggregate 95% interest in the Buena Vista Joint Venture (the "Buena Vista
Acquisition"). Patriot REIT, through certain of its subsidiaries, has entered
into a Contribution Agreement dated October 7, 1997 to acquire approximately
90% of HVP's 45% interest in the Buena Vista Joint Venture for approximately
$14,000 in cash and OP Units of the Patriot Partnerships. Patriot REIT was
also granted an option to acquire HVP's remaining interest in the Buena Vista
Joint Venture. In addition, pursuant to a Purchase and Sale Agreement dated
November 6, 1997, Patriot REIT, through certain of its subsidiaries, agreed to
acquire Equitable's 55% interest in the Buena Vista Joint Venture for
approximately $53,500 in cash and also agreed to repay outstanding mezzanine
debt of approximately $6,004. Patriot REIT will acquire the participating loan
investment held by Patriot Operating Company for approximately $23,750 in
cash. Subsequent to the acquisition of these joint venture interests, Patriot
REIT, through certain of
S-105
<PAGE>
its subsidiaries, will hold an aggregate 95% ownership interest (including a
1% general partnership interest) in the Buena Vista Joint Venture with an
option to acquire the remaining 5% interest in three years. The hotel will
remain subject to a ground lease and a first leasehold mortgage note in the
amount of approximately $50,700.
The Patriot/IHC Merger is subject to various conditions, including approval
of the Patriot/IHC Merger by the stockholders of Patriot REIT, Patriot
Operating Company and IHC. In the event that the Patriot/IHC Merger Agreement
is terminated under certain circumstances, including in order to allow IHC to
pursue a superior proposal (as defined in the Patriot/IHC Merger Agreement),
IHC will be required to pay Patriot REIT a break-up fee of $50,000. Likewise,
if the Patriot/IHC Merger Agreement is terminated by IHC as a result of
Patriot REIT's failure to recommend approval of the Patriot/IHC Merger to its
stockholders, Patriot REIT will be required to pay a $50,000 break-up fee to
IHC. The Buena Vista Acquisition is subject to various conditions, including
completion of the Patriot Companies' due diligence procedures.
The following unaudited Pro Forma Condensed Combined Statements of
Operations, as adjusted for the Patriot/IHC Merger and Buena Vista Acquisition
for the year ended December 31, 1996 and the nine months ended September 30,
1997, are derived from (i) the Patriot REIT and Wyndham International Pro
Forma Condensed Combined Statements of Operations as adjusted for the WHG
Merger for the year ended December 31, 1996 and the nine months ended
September 30, 1997; (ii) the Pro Forma Statements of Income of IHC for the
year ended December 31, 1996 and the nine months ended September 30, 1997
included elsewhere in this Supplement, (iii) the Consolidated Statements of
Operations of IHC included elsewhere in this Supplement (see page S-166), and
(iv) the statements of operations of Royal Palace Hotel Associates for the
year ended December 31, 1996 and the nine months ended September 30, 1997
filed with the Patriot Companies' Joint Current Report on Form 8-K dated
December 10, 1997 which is incorporated by reference herein. The following
unaudited Pro Forma Condensed Combined Statements of Operations assume the
Patriot/IHC Merger and the Buena Vista Acquisition had occurred on January 1,
1996.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the
Patriot/IHC Merger and the Buena Vista Acquisition would have been assuming
such transactions had been completed as of January 1, 1996, nor do they
purport to represent the results of operations for future periods. Further,
the unaudited Pro Forma Condensed Combined Statement of Operations for the
interim period ended September 30, 1997 is not necessarily indicative of the
results of operations for the full year.
S-106
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $453,764 $ -- $(421,034)(A) $ 32,730
Hotel revenue........... -- 1,686,214 -- 1,686,214
Racecourse facility
revenue, hotel and land
lease revenue.......... 100,868 51,946 (100,534)(B) 52,280
Management fee, service
fee and reimbursement
income................. -- 102,979 -- 102,979
Interest and other
income................. 2,797 16,002 (5,916)(C) 12,883
-------- ---------- --------- ----------
Total revenue........... 557,429 1,857,141 (527,484) 1,887,086
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 682,451 -- 682,451
Racecourse facility
operations............. -- 46,351 (5,611)(B) 40,740
Direct operating costs
of management company,
service department, and
reimbursement
expenses............... -- 66,458 -- 66,458
General and
administrative......... 7,097 184,492 (34)(C) 191,555
Ground lease and hotel
lease expense.......... 99,570 100,263 (94,923)(B) 104,910
Repair and maintenance.. -- 75,549 -- 75,549
Utilities............... -- 68,535 -- 68,535
Interest expense........ 234,882 4,866 (5,882)(C) 233,866
Real estate and personal
property taxes and
casualty insurance..... 56,849 3,104 -- 59,953
Marketing............... -- 136,080 -- 136,080
Management fees......... -- 15,800 -- 15,800
Depreciation and
amortization........... 183,877 62,952 -- 246,829
Participating lease
payments............... -- 421,034 (421,034)(A) --
-------- ---------- --------- ----------
Total expenses.......... 582,275 1,867,935 (527,484) 1,922,726
-------- ---------- --------- ----------
Loss before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... (24,846) (10,794) -- (35,640)
Equity in earnings of
unconsolidated
subsidiaries........... 2,096 (3,407) 5,826 (D) 4,515
-------- ---------- --------- ----------
Loss before income tax
provision and minority
interests............... (22,750) (14,201) 5,826 (31,125)
Income tax provision.... (1,045) (1,048) -- (2,093)
-------- ---------- --------- ----------
Income (loss) before
minority interests...... (23,795) (15,249) 5,826 (33,218)
Minority interests in
the Patriot
Partnerships........... (232) 1,113 -- 881
Minority interest in
consolidated
subsidiaries .......... (4,768) 2,122 (5,826)(D) (8,472)
-------- ---------- --------- ----------
Net loss applicable to
common shareholders..... $(28,795) $ (12,014) $ -- $ (40,809)
======== ========== ========= ==========
Net loss per common
Paired Share(E)......... $ (0.21) $ (0.09) $ (0.30)
======== ========== ==========
</TABLE>
- --------
(A) Represents the elimination of participating lease revenue and expense
related to those hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents the elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets are assumed to be acquired by Patriot Operating Company, the
elimination of $4,712 of interest income and expense related to the
Subscription Notes issued to Patriot Operating Company in connection with
the subscription for shares of Patriot Operating Company Common Stock and
Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
(E) Pro forma earnings per share is computed based on 139,598 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of preferred stock
into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.30 per Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-107
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
------------- ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $376,299 $ -- $ (348,932)(A) $ 27,367
Hotel revenue.......... -- 1,368,550 -- 1,368,550
Racecourse facility
revenue, hotel and
land lease revenue.... 92,336 33,399 (92,078)(B) 33,657
Management fee, service
fee and reimbursement
income................ -- 87,715 -- 87,715
Interest and other
income................ 4,043 11,738 (2,306)(C) 13,475
-------- ---------- ---------- ---------
Total revenue.......... 472,678 1,501,402 (443,316) 1,530,764
-------- ---------- ---------- ---------
Expenses:
Departmental costs--
hotel operations...... -- 525,457 -- 525,457
Racecourse facility
operations............ -- 30,114 (3,246)(B) 26,868
Direct operating costs
of management company,
service department,
and reimbursement
expenses.............. -- 59,138 -- 59,138
General and
administrative........ 7,137 145,137 (24)(C) 152,250
Ground lease and hotel
lease expense......... 90,828 93,181 (88,832)(B) 95,177
Repair and
maintenance........... -- 60,241 -- 60,241
Utilities.............. -- 53,539 -- 53,539
Interest expense....... 174,063 3,291 (2,282)(C) 175,072
Real estate and
personal property
taxes and casualty
insurance............. 43,469 2,027 -- 45,496
Marketing.............. -- 108,417 -- 108,417
Management fees........ -- 15,174 -- 15,174
Depreciation and
amortization.......... 138,430 45,996 -- 184,426
Participating lease
payments.............. -- 348,932 (348,932)(A) --
-------- ---------- ---------- ---------
Total expenses......... 453,927 1,490,644 (443,316) 1,501,255
-------- ---------- ---------- ---------
Income before equity in
earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests.... 18,751 10,758 -- 29,509
Equity in earnings of
unconsolidated
subsidiaries.......... 4,650 417 (42)(D) 5,025
-------- ---------- ---------- ---------
Income before income tax
provision and minority
interests.............. 23,401 11,175 (42) 34,534
Income tax (provision)
benefit............... (781) (7,449) -- (8,230)
-------- ---------- ---------- ---------
Income before minority
interests.............. 22,620 3,726 (42) 26,304
Minority interests in
the Patriot
Partnerships.......... (2,485) (35) -- (2,520)
Minority interest in
consolidated
subsidiaries.......... (4,159) (3,315) 42 (D) (7,432)
-------- ---------- ---------- ---------
Net income applicable to
common shareholders.... $ 15,976 $ 376 $ -- $ 16,352 (E)
======== ========== ========== =========
Net income per common
Paired Share........... $ 0.11 $ 0.00 $ 0.11 (E)
======== ========== =========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to those hotel properties leased by Patriot REIT to Wyndham International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) Represents primarily the elimination of $832 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Patriot Operating Company, the elimination
of $1,450 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries and the Patriot/IHC Non-Controlled Subsidiaries.
(E) Pro forma earnings per share is computed based on 140,229 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of preferred stock
into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.11 per Paired Share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
S-108
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Patriot/IHC Merger and the Buena Vista Acquisition had
occurred as of September 30, 1997. The Pro Forma Condensed Combined Balance
Sheet is derived from the Patriot REIT and Wyndham International Pro Forma
Condensed Combined Balance Sheet as of September 30, 1997 included elsewhere
herein.
Such pro forma information is based in part upon the Consolidated Balance
Sheets of IHC and Wyndham and Patriot REIT's and Patriot Operating Company's
Combined Balance Sheet as of September 30, 1997 which are included elsewhere
herein. This pro forma information is also based in part upon WHG's
Consolidated Balance Sheet as of September 30, 1997 filed with the Patriot
Companies' Joint Current Report on Form 8-K dated December 10, 1997. Such
information should also be read in conjunction with the financial statements
filed in IHC's, Wyndham's, the Patriot Companies' and WHG's respective
Quarterly Reports on Form 10-Q for the period ended September 30, 1997 all of
which are incorporated by reference herein. In management's opinion, all
material adjustments necessary to reflect the effect of these transactions
have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of IHC at their estimated fair market
values and the elimination of IHC's historical shareholders' equity. The fair
market values of the assets and liabilities of IHC have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of IHC will materially change; however, the allocations of
purchase costs are subject to final determination based upon estimates and
other evaluations of fair market value as of the close of the transaction.
Therefore, the allocations reflected in the following unaudited Pro Forma
Condensed Combined Balance Sheet may differ from the amounts ultimately
determined. The following unaudited Pro Forma Condensed Combined Balance Sheet
is not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of September 30, 1997,
nor does it purport to represent the future financial position of Patriot REIT
and Wyndham International as adjusted for the Patriot/IHC Merger and the Buena
Vista Acquisition.
S-109
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
WYNDHAM BUENA
INTERNATIONAL VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) HISTORICAL(C) ADJUSTMENTS(D) TOTAL
------------- ------------ ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in real
estate and related
improvements........... $2,514,216 $145,720 $1,140,291 $760,208 (E) $4,560,435
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 116,092 -- -- -- 116,092
Notes and other
receivables from
affiliates............. 24,800 -- -- -- 24,800
Notes receivable........ 17,844 -- 5,184 (5,184)(F) 17,844
Investment in
unconsolidated
subsidiaries........... 24,545 -- 24,518 -- 49,063
Cash and cash
equivalents............ 55,275 1,064 31,924 -- 88,263
Restricted cash......... 39,132 5,222 7,745 -- 52,099
Accounts receivable,
net.................... 57,676 3,895 48,653 -- 110,224
Goodwill................ 476,790 -- 21,501 123,911 (G) 622,202
Deferred expenses, net.. 24,663 2,787 13,979 8,512 (H) 49,941
Deferred acquisition
costs.................. 39,970 (23,750) -- -- 16,220
Management contract and
leasehold costs........ 153,813 -- 28,344 101,987 (I) 284,144
Trade name and franchise
costs.................. 93,050 -- -- -- 93,050
Prepaid expenses and
other assets........... 59,101 769 25,831 -- 85,701
Deferred income taxes... 1,496 -- 2,283 -- 3,779
---------- -------- ---------- -------- ----------
Total assets........... $3,698,463 $135,707 $1,350,253 $989,434 $6,173,857
========== ======== ========== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $1,495,274 $123,423 $775,504 $434,124 (J) $2,828,325
Notes and other
liabilities............ 5,032 279 -- -- 5,311
Accounts payable and
accrued expenses....... 107,337 7,904 98,613 -- 213,854
Dividends and
distributions payable.. 21,727 -- -- -- 21,727
Sales taxes payable..... 2,968 -- -- -- 2,968
Deferred income tax
liability.............. 78,617 -- 13,878 13,460(K) 105,955
Deposits................ 4,033 2,023 -- -- 6,056
Deferred gain........... -- -- -- -- --
Due to unconsolidated
subsidiaries........... 5,904 -- -- -- 5,904
Minority interests in
the Patriot
Partnerships........... 264,862 2,078 -- -- 266,940
Minority interest in
consolidated
subsidiaries........... 52,522 -- 17,141 -- 69,663
Shareholders' equity:
Preferred stock........ 44 -- -- -- 44
Common stock........... 2,006 -- 354 287 (L) 2,647
Paid-in capital........ 1,807,850 -- 411,644 574,682 (M) 2,794,176
Unearned stock compen-
sation, net........... (15,075) -- (813) 813 (M) (15,075)
Notes receivable from
stockholders.......... (17,138) -- -- -- (17,138)
Receivable from affili-
ates.................. (1,229) -- -- -- (1,229)
Retained earnings...... (116,271) -- 33,932 (33,932) (M) (116,271)
---------- -------- ---------- -------- ----------
Total shareholders' eq-
uity.................. 1,660,187 -- 445,117 541,850 (M) 2,647,154
---------- -------- ---------- -------- ----------
Total liabilities and
shareholders' equity.. $3,698,463 $135,707 $1,350,253 $989,434 $6,173,857
========== ======== ========== ======== ==========
</TABLE>
See notes on following page.
S-110
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/IHC MERGER
AND BUENA VISTA ACQUISITION NOTES TO PRO FORMA CONDENSED COMBINED BALANCE
SHEET AS OF SEPTEMBER 30, 1997
(A) Represents the pro forma combined balance sheet of Patriot REIT and
Patriot Operating Company as of September 30, 1997 as adjusted for the
Wyndham Transactions and WHG Merger. See page S-99.
(B) Represents adjustments to Patriot REIT and Wyndham International's
combined balance sheet assuming the Buena Vista Acquisition had occurred
on September 30, 1997.
(C) Represents the historical balance sheet of IHC as of September 30, 1997.
(D) Represents adjustments to Patriot REIT and Wyndham International's
Combined balance sheet as adjusted for the Patriot/IHC Merger.
(E) Represents adjustments for the purchase method of accounting whereby the
investments in hotel properties owned by IHC are adjusted to record the
assets at their estimated fair market values.
(F) Represents adjustment to eliminate notes receivable from officers which
are to be extinguished prior to the Patriot/IHC Merger.
(G) Represents the purchase consideration in excess of the fair market value
of the net assets of IHC.
(H) Represents an increase in deferred loan costs expected to be incurred in
connection with an increase in the Revolving Credit Facility to finance
the cash portion of the purchase price and Patriot/IHC Merger related
costs.
(I) Represents adjustments for the purchase method of accounting whereby the
third-party management contracts and leaseholds held by IHC are adjusted
to their estimated fair market value. The management contracts have an
average remaining life of approximately 5 years. The leaseholds have an
average remaining life of 14 years.
(J) Represents additional borrowings assumed to be incurred in connection with
the Patriot/IHC Merger as follows:
<TABLE>
<S> <C>
Cash required to finance the acquisition of 40% of the IHC Out-
standing Shares at $37.50 per share............................. $ 531,312
Less: Net proceeds from concurrent public offering (see Note L).. (190,000)
---------
Cash required to finance stock purchase.......................... 341,312
Estimated transaction costs...................................... 30,000
Buyout of IHC options............................................ 24,300
Estimated severance costs........................................ 30,000
Additional loan costs............................................ 8,512
---------
Total cash requirements......................................... $ 434,124
=========
</TABLE>
In addition, immediately following the Patriot/IHC Merger, the shareholders
of IHC and Patriot REIT will receive a special dividend in order to
distribute the current and accumulated earnings and profits of IHC and
Patriot REIT through the date of the Patriot/IHC Merger.
(K) Represents adjustments to eliminate $11,800 of the deferred tax liability
of IHC which is associated with timing differences related to depreciation
of real property which will be owned by Patriot REIT following the
Patriot/IHC Merger offset by an increase in the deferred tax liability of
$25,260 related to purchased management contracts.
(L) Represents adjustments to record the exchange of IHC Common Stock for
Paired Shares. Pursuant to the Patriot/IHC Merger Agreement, IHC
Stockholders may elect to receive for each share of IHC Common Stock held
by them, either (i) cash for shares equal to $37.50 per share; or (ii)
Paired Shares, for which the exchange ratio is determined by dividing
$37.50 by the average closing price for a Paired Share as reported on the
NYSE over the 20 consecutive trading day period ending on the trading day
immediately preceding the fifth trading day prior to the date on which the
shareholder meeting is held (subject to certain adjustments). The
Patriot/IHC Merger Agreement also provides for purchase of 40% of the IHC
Outstanding Shares for cash, with the remainder in Paired Shares. At
September 30, 1997, there were 35,421 shares of IHC Common Stock
outstanding. Assuming 40% of the IHC Outstanding Shares are tendered for
cash, the remaining 21,253 shares will be exchanged for 25,621 Paired
Shares (based upon the average closing price of the Paired Shares for the
trading 20 days ended November 26, 1997 of $31.106). In addition, the
Patriot Companies have received a forward commitment from PaineWebber and
UBS to place $200,000 of Paired Shares concurrent with the Patriot/IHC
Merger. Assuming the Paired Shares were offered at the average closing
price of the Paired Shares for the trading 20 days ended November 26, 1997
of $31.106, an additional 6,430 Paired Shares will be outstanding
following the Patriot/IHC Merger. The increase in common stock is
summarized as follows:
<TABLE>
<S> <C>
Paired Shares exchanged in Patriot/IHC Merger........................ 25,621
Paired Shares offered in concurrent offering......................... 6,430
======
Increase in Paired Shares............................................ 32,051
Par value of each Paired Share....................................... $ 0.02
======
Increase in common stock............................................. $ 641
Less: IHC historical common stock.................................... (354)
------
Adjustment to common stock........................................ $ 287
======
</TABLE>
Notes continue on next page
S-111
<PAGE>
(M) Represents adjustments to shareholders' equity to eliminate IHC's
historical equity accounts and record equity based upon the number of
Paired Shares issued in the Patriot/IHC Merger and the concurrent public
offering of Paired Shares as follows:
<TABLE>
<S> <C>
Purchase consideration for IHC Outstanding Shares (35,421 shares
of IHC Common Stock at $37.50 per share)....................... $1,328,279
Less: IHC Common Stock to be purchased for cash................. (531,312)
----------
Purchase consideration for shares............................... 796,967
Net proceeds from concurrent offering........................... 190,000
Book value of IHC paid-in capital............................... (411,644)
Adjustment to common stock...................................... (641)
----------
Adjustment to Paid-in Capital.................................. $ 574,682
----------
Elimination of IHC historical retained earnings................. (33,932)
Adjustment to unearned stock compensation....................... 813
Adjustment to common stock...................................... 287
----------
Adjustment to shareholders' equity............................. $ 541,850
==========
</TABLE>
S-112
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT BUENA
REIT VISTA PATRIOT/IHC
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
--------- ------------ -------------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $279,948 $22,434 $151,382 (D) $453,764
Racecourse facility,
hotel and land lease
revenue............... 17,714 -- 83,154 (E) 100,868
Interest and other
income................ 2,797 -- -- 2,797
-------- ------- -------- --------
Total revenue.......... 300,459 22,434 234,536 557,429
-------- ------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 16,824 -- 82,746 (F) 99,570
General and
administrative........ 7,097 -- -- 7,097
Interest expense....... 124,637 10,543 (G) 99,702 (G) 234,882
Real estate and
personal property
taxes and casualty
insurance............. 34,542 2,543 19,764 (H) 56,849
Depreciation and
amortization.......... 93,775 5,692 84,410 (I) 183,877
-------- ------- -------- --------
Total expenses......... 276,875 18,778 286,622 582,275
-------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 23,584 3,656 (52,086) (24,846)
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 2,877 -- (781)(J) 2,096
-------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 26,461 3,656 (52,867) (22,750)
Income tax provision... (345) -- (700)(K) (1,045)
-------- ------- -------- --------
Income (loss) before mi-
nority interests....... 26,116 3,656 (53,567) (23,795)
Minority interest in
the Patriot REIT Part-
nership............... (2,428) -- 2,196 (L) (232)
Minority interest in
consolidated subsidi-
aries................. (1,832) (183) (2,753)(M) (4,768)
-------- ------- -------- --------
Net income (loss)
applicable to common
shareholders .......... $ 21,856 $ 3,473 $(54,124) $(28,795)(N)
======== ======= ======== ========
Net income (loss) per
common share........... $ 0.20 $ (0.21)(N)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
year ended December 31, 1996 as adjusted for the Wyndham Transactions and
WHG Merger. See page S-96.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Buena Vista Acquisition had occurred as of January 1, 1996.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents pro forma lease payments from Wyndham International to Patriot
REIT for the 40 hotels Patriot REIT will own subsequent to the Patriot/IHC
Merger, based upon the historical revenue for the hotels for the period
presented.
(E) Represents pro forma hotel lease payments from Wyndham International to
Patriot REIT for the 88 hotels leased by IHC at September 30, 1997 that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger, based upon the historical revenue of the hotels for
the period presented.
(F) Represents ground lease expense of $1,602 related to certain of the hotels
acquired by Patriot REIT in the Patriot/IHC Merger and hotel lease expense
of $81,144 related to the 88 hotels leased from third-party owners that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger.
(G) For the Buena Vista Acquisition, the adjustment represents interest
expense on debt assumed and interest expense incurred on additional
borrowings under the Revolving Credit Facility, which will be used to
purchase the hotel. For the Patriot/IHC Merger, the adjustment represents
interest expense of $59,086 on approximately $775,504 of IHC debt assumed
in connection with the transaction, interest expense of $32,486 incurred
on borrowings which will be used to finance a portion of the Patriot/IHC
Merger, and amortization of deferred loan costs of $6,191. Amount also
represents an adjustment of $1,939 to reflect an increase in the interest
rate charged on borrowings under the Revolving Credit Facility and Term
Loan (to LIBOR plus 2%) based on Patriot REIT's estimated leverage ratio
following the Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.483% (LIBOR plus 2%). An
increase of 0.25% in the interest rate
S-113
<PAGE>
would increase pro forma interest expense to $239,381, increase net loss
applicable to common shareholders to $33,140 and increase net loss per
common share to $0.24, based on 139,598 weighted average common shares and
common share equivalents outstanding.
(H) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot REIT
following the Patriot/IHC Merger.
(I) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F&E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(J) Represents Patriot REIT's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by Wyndham International
following the Patriot/IHC Merger.
(K) Represents provision for Patriot REIT's estimated state tax liability.
(L) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Buena Vista Acquisition and
Patriot/IHC Merger of approximately 10%. The estimated minority interest
percentage prior to the Buena Vista Acquisition and Patriot/IHC Merger is
also approximately 10%.
(M) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot REIT in connection with the Patriot/IHC
Merger.
(N) Pro forma earnings per share is computed based on 139,598 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of preferred stock into Paired Shares of
common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.21 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
S-114
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) ADJUSTMENTS(C) TOTAL
--------- ------------ -------------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $229,977 $19,348 $126,974 (D) $376,299
Racecourse facility,
hotel and land lease
revenue .............. 19,759 -- 72,577 (E) 92,336
Interest and other
income................ 4,043 -- -- 4,043
-------- ------- -------- --------
Total revenue.......... 253,779 19,348 199,551 472,678
-------- ------- -------- --------
Expenses:
Ground lease and hotel
lease expense......... 20,017 -- 70,811 (F) 90,828
General and
administrative........ 7,137 -- -- 7,137
Interest expense....... 94,414 8,082 (G) 71,567 (G) 174,063
Real estate and
personal property
taxes and casualty
insurance............. 27,066 1,914 14,489 (H) 43,469
Depreciation and
amortization.......... 70,854 4,269 63,307 (I) 138,430
-------- ------- -------- --------
Total expenses......... 219,488 14,265 220,174 453,927
-------- ------- -------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 34,291 5,083 (20,623) 18,751
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 6,027 -- (1,377)(J) 4,650
-------- ------- -------- --------
Income (loss) before
income tax provision
and minority
interests.............. 40,318 5,083 (22,000) 23,401
Income tax provision... (256) -- (525)(K) (781)
-------- ------- -------- --------
Income (loss) before mi-
nority interests....... 40,062 5,083 (22,525) 22,620
Minority interest in
the Patriot REIT
Partnership........... (3,819) -- 1,334 (L) (2,485)
Minority interest in
consolidated subsidi-
aries................. (1,869) (254) (2,036)(M) (4,159)
-------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ 34,374 $ 4,829 $(23,227) $ 15,976 (N)
======== ======= ======== ========
Net income per common
share.................. $ 0.31 $ 0.11 (N)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
nine months ended September 30, 1997 as adjusted for the Wyndham
Transactions and WHG Merger. See page S-97.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Buena Vista Acquisition had occurred as of January 1, 1996.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Patriot/IHC Merger had occurred as of January 1, 1996.
(D) Represents pro forma lease payments from Wyndham International to Patriot
REIT for the 40 hotels Patriot REIT will own subsequent to the Patriot/IHC
Merger, based upon the historical revenue for the hotels for the period
presented.
(E) Represents pro forma hotel lease payments from Wyndham International to
Patriot REIT for the 88 hotels leased by IHC at September 30, 1997 that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger, based upon the historical revenue of the hotels for
the period presented.
(F) Represents ground lease expense of $1,138 related to certain of the hotels
acquired by Patriot REIT in the Patriot/IHC Merger and hotel lease expense
of $69,673 related to the 88 hotels leased from third-party owners that
Patriot REIT will sublease to Wyndham International subsequent to the
Patriot/IHC Merger.
(G) For the Buena Vista Acquisition, the adjustment represents interest
expense on debt assumed and interest expense incurred on additional
borrowings under the Revolving Credit Facility, which will be used to
purchase the hotel. For the Patriot/IHC Merger, the adjustment represents
interest expense of $40,657 on approximately $775,504 of IHC debt assumed
in connection with the transaction, interest expense of $24,754 incurred
on borrowings which will be used to finance a portion of the Patriot/ IHC
Merger, and amortization of deferred loan costs of $4,666. Amount also
represents an adjustment of $1,490 to reflect an increase in the interest
rate charged on borrowings under the Revolving Credit Facility and Term
Loan (to LIBOR plus 2%) based on Patriot REIT's estimated leverage ratio
following the Patriot/IHC Merger.
The deferred loan costs incurred on the new borrowings are being amortized
over the term of the loan. Interest expense on the Revolving Credit Facility
and Term Loan assumes an average interest rate of 7.603% (LIBOR plus 2%). An
increase of 0.25% in the interest rate
S-115
<PAGE>
would increase pro forma interest expense to $177,501, decrease net income
applicable to common shareholders to $12,655 and decrease net income per
common share to $0.09, based on 140,229 weighted average common shares and
common share equivalents outstanding.
(H) Represents real estate and personal property taxes and casualty insurance
related to the 40 IHC owned hotels which will be paid by Patriot REIT
following the Patriot/IHC Merger.
(I) Represents adjustment to increase depreciation of the real estate and
amortization of the cost of leaseholds acquired in the Patriot/IHC Merger.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F&E. These estimates are based upon management's
knowledge of the properties and the hotel industry in general. Leasehold
costs are amortized on a straight-line basis over the remaining term of
the lease.
(J) Represents Patriot REIT's share of the earnings of the Patriot/IHC Non-
Controlled Subsidiaries which will own the management contracts and hotel
management business and will be controlled by Wyndham International
following the Patriot/IHC Merger.
(K) Represents provision for Patriot REIT's estimated state tax liability.
(L) Represents adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Buena Vista Acquisition and
Patriot/IHC Merger of approximately 10%. The estimated minority interest
percentage prior to the Buena Vista Acquisition and Patriot/IHC Merger is
also approximately 10%.
(M) Represents the minority interest in income of consolidated entities which
will be acquired by Patriot REIT in connection with the Patriot/IHC
Merger.
(N) Pro forma earnings per share is computed based on 140,229 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of preferred stock into Paired Shares of
common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.12 per common share. The impact of Statement
128 on the calculation of diluted earnings per share is not expected to
differ significantly from the earnings per share amounts reported.
S-116
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
WYNDHAM ------------------------------------------
INTERNATIONAL BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS(D) TOTAL
------------- ------------ ------------ -------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 572,417 $38,089 $490,330 $ -- $1,100,836
Other hotel revenue.... 359,142 24,402 201,834 -- 585,378
Racecourse facility
revenue............... 51,946 -- -- -- 51,946
Management fee, service
fee and reimbursement
income................ 62,221 -- 40,758 -- 102,979
Interest and other
income................ 14,346 -- 1,656 -- 16,002
---------- ------- -------- -------- ----------
Total revenue.......... 1,060,072 62,491 734,578 -- 1,857,141
---------- ------- -------- -------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 403,122 25,927 253,402 -- 682,451
Racecourse facility
operations............ 46,351 -- -- -- 46,351
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 47,564 -- 18,894 -- 66,458
General and
administrative........ 110,110 4,313 70,069 -- 184,492
Ground lease and hotel
lease expense ........ 12,502 4,607 1,602 81,552 (E) 100,263
Repair and
maintenance........... 41,991 2,318 31,240 -- 75,549
Utilities.............. 36,834 2,522 29,179 -- 68,535
Marketing.............. 73,533 3,681 64,394 (5,528)(F) 136,080
Management fees........ 9,469 1,677 661 3,993 (G) 15,800
Depreciation and
amortization.......... 40,943 -- 48,024 (26,015)(H) 62,952
Participating lease
payments.............. 247,218 22,434 81,144 (I) 70,238 (I) 421,034
Interest expense....... 4,866 -- 59,086 (59,086)(J) 4,866
Real estate and
personal property
taxes and insurance... 847 -- 22,021 (19,764)(J) 3,104
---------- ------- -------- -------- ----------
Total expenses......... 1,075,350 67,479 679,716 45,390 1,867,935
---------- ------- -------- -------- ----------
Income (loss) before eq-
uity earnings of uncon-
solidated subsidiaries
income tax provision,
and minority
interests.............. (15,278) (4,988) 54,862 (45,390) (10,794)
Equity in earnings of
unconsolidated subsidi-
aries.................. (3,407) -- -- -- (3,407)
---------- ------- -------- -------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (18,685) (4,988) 54,862 (45,390) (14,201)
Income tax (provision)
benefit............... 4,647 -- (19,801) 14,106 (K) (1,048)
---------- ------- -------- -------- ----------
Income (loss) before mi-
nority interests....... (14,038) (4,988) 35,061 (31,284) (15,249)
Minority interest in
the Patriot Operating
Company Partnership... 1,359 -- -- (246)(L) 1,113
Minority interest in
consolidated
subsidiaries.......... 1,341 -- (2,753) 3,534 (M) 2,122
---------- ------- -------- -------- ----------
Net income (loss)
applicable to common
shareholders........... $ (11,338) $(4,988) $ 32,308 $(27,996) $ (12,014)(N)
========== ======= ======== ======== ==========
Net loss per common
share.................. $ (0.11) $ (0.09) (N)
========== ==========
</TABLE>
See notes on following page.
S-117
<PAGE>
WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA
ACQUISITION NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(A) Represents the pro forma results of operations of Patriot Operating
Company for the year ended December 31, 1996 as adjusted for the Wyndham
Transactions and WHG Merger. See page S-101.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Buena Vista had been acquired on January 1, 1996.
(C) Represents the pro forma results of operations of IHC for the year ended
December 31, 1996 prior to the Patriot/IHC Merger. See page S-187.
(D) Represents adjustments to Wyndham International's results of operations
assuming the Patriot/IHC Merger had occurred as of January 1, 1996.
(E) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
REIT subsequent to the Patriot/IHC Merger...................... $(1,602)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note I)..................... 81,144
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot REIT to Wyndham International............. 2,010
-------
$81,552
=======
</TABLE>
(F) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott International, Inc. hotels which are
assumed to be terminated concurrently with the Patriot/IHC Merger.
(G) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott International, Inc., which are
assumed to be executed concurrently with the Patriot/IHC Merger.
(H) Represents an adjustment of $45,887 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot REIT,
partially offset by an increase of $19,872 in amortization expense related
to amortization of goodwill and management contracts. The goodwill related
to the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(I) The participating lease payment amount of $81,144 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot REIT will
sublease these hotel leaseholds to Wyndham International. The pro forma
adjustment of $70,238 is composed of the following adjustments:
<TABLE>
<S> <C>
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot REIT to Wyndham International
subsequent to the Patriot/IHC Merger.......................... $151,382
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note E).................... (81,144)
--------
$ 70,238
========
</TABLE>
(J) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot REIT subsequent to the
Patriot/IHC Merger.
(K) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon Wyndham International's pro forma taxable income
following the Patriot/IHC Merger.
(L) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to
8.48%.
(M) Represents an adjustment of $2,753 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot REIT following the Patriot/IHC Merger, and an adjustment of $781
to reflect Patriot REIT's allocation of losses from the Patriot/IHC Non-
Controlled subsidiaries.
(N) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 139,598 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculation includes adjustments to reflect the impact of the conversion
of preferred stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.09. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
S-118
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE PATRIOT/IHC MERGER AND BUENA VISTA ACQUISITION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
ADJUSTMENTS
WYNDHAM ------------------------------------------
INTERNATIONAL BUENA VISTA PATRIOT/IHC
PRO FORMA ACQUISITION IHC MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS(D) TOTAL
------------- ------------ ------------ -------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $478,793 $31,573 $400,419 $ -- $ 910,785
Other hotel revenue.... 284,823 20,610 152,332 -- 457,765
Racecourse facility
revenue............... 33,399 -- -- -- 33,399
Management fee, service
fee and reimbursement
income................ 56,838 -- 30,877 -- 87,715
Interest and other
income................ 10,524 -- 1,214 -- 11,738
-------- ------- -------- -------- ---------
Total revenue.......... 864,377 52,183 584,842 -- 1,501,402
-------- ------- -------- -------- ---------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 307,597 21,294 196,566 -- 525,457
Racecourse facility
operations............ 30,114 -- -- -- 30,114
Direct operating costs
of management company,
service department and
reimbursement
expenses.............. 43,427 -- 15,711 -- 59,138
General and
administrative........ 87,322 3,267 54,548 -- 145,137
Ground lease and hotel
lease expense ........ 16,778 3,826 1,138 71,439 (E) 93,181
Repair and
maintenance........... 34,512 2,239 23,490 -- 60,241
Utilities.............. 29,841 1,802 21,896 -- 53,539
Marketing.............. 61,334 2,529 48,962 (4,408)(F) 108,417
Management fees........ 9,657 1,464 765 3,288 (G) 15,174
Depreciation and
amortization.......... 29,489 -- 34,179 (17,672)(H) 45,996
Participating lease
payments.............. 202,610 19,348 69,673 (I) 57,301 (I) 348,932
Interest expense....... 3,291 -- 40,657 (40,657)(J) 3,291
Real estate and
personal property
taxes and insurance... 290 -- 16,226 (14,489)(J) 2,027
-------- ------- -------- -------- ---------
Total expenses......... 856,262 55,769 523,811 54,802 1,490,644
-------- ------- -------- -------- ---------
Income (loss) before eq-
uity earnings of uncon-
solidated subsidiaries
income tax provision,
and minority
interests.............. 8,115 (3,586) 61,031 (54,802) 10,758
Equity in earnings of
unconsolidated subsidi-
aries.................. 417 -- -- -- 417
-------- ------- -------- -------- ---------
Income (loss) before
income tax provision
and minority
interests.............. 8,532 (3,586) 61,031 (54,802) 11,175
Income tax (provision)
benefit............... (3,477) -- (22,418)(K) 18,446 (K) (7,449)
-------- ------- -------- -------- ---------
Income (loss) before mi-
nority interests....... 5,055 (3,586) 38,613 (36,356) 3,726
Minority interest in
the Patriot Operating
Company Partnership... (39) -- -- 4 (L) (35)
Minority interest in
consolidated
subsidiaries.......... (4,692) -- (2,036) 3,413 (M) (3,315)
-------- ------- -------- -------- ---------
Net income (loss)
applicable to common
shareholders........... $ 324 $(3,586) $ 36,577 $(32,939) $ 376 (N)
======== ======= ======== ======== =========
Net income per common
share.................. $ 0.01 $ 0.00 (N)
======== =========
</TABLE>
See notes on following page.
S-119
<PAGE>
WYNDHAM INTERNATIONAL, ADJUSTED FOR THE PATRIOT/ICH MERGER AND BUENA VISTA
ACQUISITION NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(A) Represents the pro forma results of operations of Patriot Operating
Company for the nine months ended September 30, 1997 as adjusted for the
Wyndham Transactions and WHG Merger. See page S-102.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Buena Vista had been acquired on January 1, 1996.
(C) Represents the pro forma results of operations of IHC for the nine months
ended September 30, 1997 prior to the Patriot/IHC Merger. See page S-188.
(D) Represents adjustments to Wyndham International's results of operations
assuming the Patriot/IHC Merger had occurred as of January 1, 1996.
(E) Represents the following adjustments to pro forma ground lease and hotel
lease expense:
<TABLE>
<S> <C>
Eliminate ground lease expense which will be paid by Patriot
REIT subsequent to the Patriot/IHC merger...................... $(1,138)
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note I)..................... 69,673
Incremental hotel lease expense related to the sub-lease of the
88 hotels by Patriot REIT to Wyndham International............. 2,904
-------
$71,439
=======
</TABLE>
(F) Represents the historical costs of IHC franchise fee payments related to
franchise agreements for ten Marriott International, Inc. hotels which are
assumed to be terminated concurrently with the Patriot/IHC Merger.
(G) Represents additional management fees to be incurred by IHC pursuant to
new management agreements with Marriott International, Inc., which are
assumed to be executed concurrently with the Patriot/IHC Merger.
(H) Represents an adjustment of $32,943 to allocate the IHC pro forma
depreciation and amortization related to real estate to Patriot REIT,
partially offset by an increase of $15,271 in amortization expense related
to amortization of goodwill and management contracts. The goodwill related
to the management business is amortized on a straight-line basis over an
estimated useful life of 20 years. Management contracts are amortized on a
straight-line basis over their estimated remaining lives of 5 years.
(I) The participating lease payment amount of $69,673 reflected in the IHC Pro
Forma Statement of Operations represents hotel lease payments made to
third parties in connection with the 88 leaseholds held by IHC as of
September 30, 1997. Following the Patriot/IHC Merger, Patriot REIT will
sublease these hotel leaseholds to Wyndham International. The pro forma
adjustment of $57,301 is composed of the following adjustments:
<TABLE>
<S> <C>
Pro forma participating lease payments related to the 40 owned
hotels leased by Patriot REIT to Wyndham International
subsequent to the Patriot/IHC Merger.......................... $126,974
Reclassification of hotel lease expense for financial statement
presentation purposes related to the 88 hotels IHC leased from
third-party owners at September 30, 1997. Subsequent to the
Patriot/IHC Merger, these hotels will be sub-leased by Patriot
REIT to Wyndham International (see Note E).................... (69,673)
--------
$ 57,301
========
</TABLE>
(J) Represents adjustments to the IHC pro forma results of operations to
eliminate interest expense and real estate and personal property taxes and
casualty insurance to be paid by Patriot REIT subsequent to the
Patriot/IHC Merger.
(K) Represents an adjustment to the IHC pro forma tax expense to reflect the
tax provision based upon Wyndham International's pro forma taxable income
following the Patriot/IHC Merger.
(L) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the Patriot/IHC Merger to 8.48%
(M) Represents an adjustment of $2,036 to eliminate the IHC pro forma minority
interest in certain consolidated subsidiaries which will be owned by
Patriot REIT following the Patriot/IHC Merger, and an adjustment of $1,377
to reflect Patriot REIT's allocation of earnings from the Patriot/IHC Non-
Controlled subsidiaries.
(N) Pro forma earnings per share subsequent to the Patriot/IHC Merger is
computed based on 140,229 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculations includes adjustments to reflect the impact of the conversion
of preferred stock into Paired Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the nine months ended
September 30, 1997 would be $0.00. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected is not expected to
differ significantly from the earnings per share amounts reported.
S-120
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in real estate and related improvements
and land held for sale, net of accumulated
depreciation of $50,319 in 1997 and $19,815 in
1996............................................... $1,477,512 $641,825
Cash and cash equivalents........................... 21,515 6,604
Restricted cash..................................... 38,196 --
Accounts receivable................................. 38,540 6,198
Investment in unconsolidated subsidiaries........... 12,061 11,291
Mortgage notes and other receivables from
unconsolidated subsidiaries........................ 74,053 72,209
Mortgage and promissory notes and other receivables
from lessees and their affiliates.................. 98,538 631
Inventories......................................... 3,439 1,648
Management contracts................................ 22,453 --
Trade names and franchise costs..................... 2,500 --
Deferred expenses, net.............................. 16,626 3,063
Deferred acquisition costs.......................... 46,036 15,394
Goodwill, net of accumulated amortization of $716... 120,839 --
Prepaid expenses and other assets................... 7,099 2,068
Deferred income taxes............................... 700 --
---------- --------
Total assets..................................... $1,980,107 $760,931
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility and
mortgage notes..................................... $ 727,177 $214,339
Accounts payable and accrued expenses............... 48,561 10,117
Dividends and distributions payable................. 21,727 13,129
Sales taxes payable................................. 2,968 --
Deposits............................................ 2,037 --
Due to unconsolidated subsidiaries.................. 5,904 6,034
Deferred income tax liability....................... 4,846 --
Minority interest in the Patriot Partnerships....... 257,274 68,562
Minority interest in other consolidated
subsidiaries....................................... 29,284 11,711
Commitment and contingencies........................ -- --
Shareholders' Equity:
Preferred stock (paired shares), $0.01 par value,
authorized: 100,000,000 shares each; no shares
issued and outstanding............................ -- --
Excess stock (paired shares), $0.01 par value, au-
thorized: 750,000,000 shares each; no shares is-
sued and outstanding.............................. -- --
Common stock (paired shares), $0.01 par value, au-
thorized: 650,000,000 shares each; issued and
outstanding: 68,005,704 shares each in 1997 and
43,613,496 shares in 1996(1)...................... 1,360 436
Additional paid in capital......................... 941,674 442,104
Unearned stock compensation, net of accumulated
amortization of $4,451 in 1997 and $1,139 in
1996.............................................. (15,075) (5,427)
Distributions in excess of retained earnings....... (47,630) (74)
---------- --------
Total shareholders' equity....................... 880,329 437,039
---------- --------
Total liabilities and shareholders' equity....... $1,980,107 $760,931
========== ========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split effected
in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 Paired Shares issued in the merger with California
Jockey Club, and after restatement to reflect the impact of the 1.927-to-1
stock split effected in the form of a stock dividend distributed on July
25, 1997 to shareholders of record on July 15, 1997.
See notes to financial statements.
S-121
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- ------------------
1997 1996 1997 1996
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue.......... $ 35,098 $22,466 $107,084 $52,735
Hotel revenue........................ 30,271 -- 30,271 --
Racecourse facility and land lease
revenue............................. 10,861 -- 10,861 --
Management fee and service fee in-
come................................ 1,577 -- 1,577 --
Interest and other income............ 3,831 211 4,963 412
--------- -------- -------- --------
Total revenue........................ 81,638 22,677 154,756 53,147
--------- -------- -------- --------
Expenses:
Departmental costs--hotel operations
.................................... 10,032 -- 10,032 --
Racing facility operations........... 9,213 -- 9,213 --
Direct operating costs of management
company and service department...... 260 -- 260 --
General and administrative........... 6,582 1,381 11,663 3,273
Ground lease expense................. 1,310 411 1,993 711
Repair and maintenance............... 1,186 -- 1,186 --
Utilities............................ 1,450 -- 1,450 --
Interest expense..................... 13,933 1,709 31,261 4,481
Real estate and personal property
taxes and casualty insurance........ 4,301 1,910 11,267 4,452
Marketing............................ 3,122 -- 3,122 --
Management fees...................... 699 -- 699 --
Cost of acquiring leaseholds......... 43,820 -- 43,820 --
Depreciation and amortization........ 13,792 4,844 31,798 11,628
--------- -------- -------- --------
Total expenses....................... 109,700 10,255 157,764 24,545
--------- -------- -------- --------
Income (loss) before equity in earn-
ings of unconsolidated subsidiaries,
income tax provision, minority inter-
ests and extraordinary item.......... (28,062) 12,422 (3,008) 28,602
Equity in earnings of unconsolidated
subsidiaries........................ 1,395 1,772 4,488 4,377
--------- -------- -------- --------
Income (loss) before income tax provi-
sion, minority interests and extraor-
dinary item.......................... (26,667) 14,194 1,480 32,979
Income tax provision................. (94) -- (94) --
--------- -------- -------- --------
Income (loss) before minority inter-
ests and extraordinary item.......... (26,761) 14,194 1,386 32,979
Minority interest in the Patriot
Partnerships........................ 3,225 (2,168) (1,309) (5,142)
Minority interest in consolidated
subsidiaries........................ (934) (2) (1,381) (2)
--------- -------- -------- --------
Income (loss) before extraordinary
item................................. (24,470) 12,024 (1,304) 27,835
Extraordinary loss from early
extinguishment of debt, net of
minority interest................... (2,534) -- (2,534) --
--------- -------- -------- --------
Net income (loss) applicable to common
shareholders......................... $ (27,004) $ 12,024 $ (3,838) $ 27,835
========= ======== ======== ========
Net income (loss) per common Paired
Share(1):
Income (loss) before extraordinary
item................................ $ (0.38) $ 0.30 $ (0.03) $ 0.83
Extraordinary loss................... $ (0.04) $ -- $ (0.05) $ --
--------- -------- -------- --------
Net income (loss) per common Paired
Share............................... $ (0.42) $ 0.30 $ (0.08) $ 0.83
========= ======== ======== ========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split effected
in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 Paired Shares issued in the merger with California
Jockey Club, and after restatement to reflect the impact of the 1.927-to-1
stock split effected in the form of a stock dividend distributed on July
25, 1997 to shareholders of record on July 15, 1997.
See notes to financial statements.
S-122
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (3,838) $ 27,835
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................ 30,539 11,538
Amortization of unearned stock compensation............. 3,312 630
Amortization of deferred loan costs..................... 1,342 273
Amortization of lease inducement costs.................. 102 76
Amortization of management contracts and trade names.... 469 --
Amortization of goodwill................................ 716 --
Other amortization...................................... 93 90
Cost of acquiring leaseholds............................ 43,820 --
Payment of interest on notes receivable from unconsoli-
dated subsidiaries..................................... 3,448 3,204
Accrued interest receivable............................. (1,497) --
Issue common stock to directors......................... -- 37
Equity in earnings of unconsolidated subsidiaries....... (4,488) (4,377)
Minority interest in income of the Patriot Partner-
ships.................................................. 1,309 5,142
Minority interest in income of other consolidated sub-
sidiaries.............................................. 1,381 2
Extraordinary loss from early extinguishment of debt.... 2,534 --
Changes in assets and liabilities:
Accounts receivable.................................... (24,164) (5,611)
Prepaid expenses and other assets...................... (3,112) (53)
Accounts payable and accrued expenses.................. 29,341 1,259
Due to unconsolidated subsidiaries..................... (130) (45)
Due from PAH RSI, L.L.C................................ (6,709) --
Deposits............................................... 1,418 --
--------- ---------
Net cash provided by operating activities............. 75,886 40,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related working cap-
ital assets............................................ (507,734) (278,725)
Improvements and additions to hotel properties.......... (53,761) (9,085)
Net proceeds from land sale............................. 77,226 --
Acquisition of hotel properties from restricted cash.... (39,142) --
Restricted cash......................................... (38,196) --
Collection of receivables from selling entities......... 525 1,003
Prepaid acquisition costs............................... (34,846) 246
Investment in unconsolidated subsidiaries............... (1,574) --
Investment in mortgage note receivable from unconsoli-
dated subsidiaries..................................... -- (31,400)
Investment in mortgage and promissory notes from Lessees
and their affiliates................................... (112,625) --
Principal payment received on mortgage and other note
receivable............................................. -- 399
--------- ---------
Net cash used in investing activities................. (710,127) (317,562)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility and mortgage
notes.................................................. 1,300,820 295,555
Repay borrowings under line of credit facility.......... (822,226) (191,463)
Payment of deferred loan costs.......................... (18,723) (1,184)
Capital lease........................................... 119 --
Payment of merger costs................................. (11,414) --
Proceeds of equity offerings and private placement of
securities............................................. 253,289 213,061
Payment of offering costs............................... (12,602) (13,884)
Proceeds from exercise of options to purchase common
stock.................................................. 2,298 --
Contribution received from minority interest in consoli-
dated subsidiaries..................................... 16,204 3,213
Payments to redeem OP Units............................. (14,596) --
Dividends and distributions paid........................ (44,017) (25,501)
--------- ---------
Net cash provided by financing activities............. 649,152 279,797
--------- ---------
Net increase in cash and cash equivalents................ 14,911 2,235
Cash and cash equivalents at beginning of period......... 6,604 4,769
--------- ---------
Cash and cash equivalents at end of period............... $ 21,515 $ 7,004
========= =========
</TABLE>
See notes to financial statements.
S-123
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in hotel properties and land held for de-
velopment, net of accumulated depreciation of
$49,436 in 1997 and $19,815 in 1996................ $1,444,404 $641,825
Investment in Racecourse facility and related im-
provements, net of accumulated depreciation of $392
in 1997............................................ 15,179 --
Cash and cash equivalents, including capital im-
provement reserves of $2,600 in 1997 and $2,458 in
1996............................................... 10,332 6,604
Restricted cash..................................... 38,196 --
Lease revenue receivable............................ 18,938 5,351
Receivables from selling entities................... 1,870 847
Investment in unconsolidated subsidiaries........... 12,061 11,291
Mortgage notes and other receivables from unconsoli-
dated subsidiaries................................. 74,053 72,209
Mortgage and promissory notes and other receivables
from Lessees and their affiliates.................. 98,538 631
Inventory........................................... 1,908 1,648
Goodwill, net of accumulated amortization of $538... 86,532 --
Deferred expenses, net of accumulated amortization
of $936 in 1997 and $750 in 1996................... 16,626 3,063
Deferred acquisition costs.......................... 21,802 15,394
Prepaid expenses and other assets................... 2,926 2,068
---------- --------
Total assets....................................... $1,843,365 $760,931
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Borrowings under line of credit facility and mort-
gage notes......................................... $ 727,177 $214,339
Subscription notes payable.......................... 24,170 --
Accounts payable and accrued expenses............... 22,974 10,117
Dividends and distributions payable................. 21,301 13,129
Due to unconsolidated subsidiaries.................. 5,904 6,034
Minority interest in Patriot REIT Partnership....... 218,196 68,562
Minority interest in other subsidiaries............. 29,284 11,711
Commitments and contingencies....................... -- --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized:
100,000,000 shares; no shares issued and
outstanding....................................... -- --
Excess stock, $0.01 par value; authorized:
750,000,000 shares; no shares issued and
outstanding....................................... -- --
Common stock, $0.01 par value; authorized:
650,000,000 shares; shares issued and outstanding:
68,005,704 shares in 1997 and 43,613,496 shares in
1996 (1).......................................... 680 436
Paid-in capital.................................... 857,093 442,104
Unearned stock compensation, net of accumulated am-
ortization of $4,451 in 1997 and $1,139 in 1996... (15,075) (5,427)
Distributions in excess of retained earnings....... (48,339) (74)
---------- --------
Total shareholders' equity......................... 794,359 437,039
---------- --------
Total liabilities and shareholders' equity......... $1,843,365 $760,931
========== ========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 paired shares issued in the merger with California
Jockey Club, and after restatement to reflect the impact of the 1.927-
for-1 stock split effected in the form of a stock dividend distributed on
July 25, 1997 to shareholders of record on July 15, 1997.
See notes to financial statements.
S-124
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -------------------
1997 1996 1997 1996
--------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease revenue........ $ 45,784 $22,466 $117,770 $52,735
Racecourse land lease revenue...... 1,323 -- 1,323 --
Interest and other income.......... 3,083 211 4,215 412
--------- -------- --------- --------
Total revenue.................... 50,190 22,677 123,308 53,147
--------- -------- --------- --------
Expenses:
Real estate and personal property
taxes and casualty insurance...... 4,253 1,910 11,219 4,452
Ground lease expense............... 1,310 411 1,993 711
General and administrative......... 2,501 1,381 7,582 3,273
Interest expense................... 14,649 1,709 31,977 4,481
Cost of acquiring leaseholds....... 43,820 -- 43,820 --
Depreciation and amortization...... 12,650 4,844 30,656 11,628
--------- -------- --------- --------
Total expenses................... 79,183 10,255 127,247 24,545
--------- -------- --------- --------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries, minority interests and
extraordinary item.................. (28,993) 12,422 (3,939) 28,602
Equity in earnings of unconsoli-
dated subsidiaries................ 1,395 1,772 4,488 4,377
--------- -------- --------- --------
Income (loss) before minority inter-
ests and extraordinary item......... (27,598) 14,194 549 32,979
Minority interest in Patriot REIT
Partnership....................... 3,340 (2,168) (1,194) (5,142)
Minority interest in other consoli-
dated subsidiaries................ (921) (2) (1,368) (2)
--------- -------- --------- --------
Income (loss) before extraordinary
item................................ (25,179) 12,024 (2,013) 27,835
Extraordinary loss from early ex-
tinguishment of debt, net of mi-
nority interest................... (2,534) -- (2,534) --
--------- -------- --------- --------
Net income (loss) applicable to com-
mon shareholders.................... $(27,713) $12,024 $ (4,547) $27,835
========= ======== ========= ========
Net income (loss) per common
share(1):
Income (loss) before extraordinary
item.............................. $ (0.39) $ 0.30 $ (0.04) $ 0.83
Extraordinary loss................. (0.04) -- (0.05) --
--------- -------- --------- --------
Net income (loss) per common
share............................. $ (0.43) $ 0.30 $ (0.09) $ 0.83
========= ======== ========= ========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split effected
in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 paired shares issued in the merger with California
Jockey Club, and after restatement to reflect the impact of the 1.927-for-1
stock split effected in the form of a stock dividend distributed on July
25, 1997 to shareholders of record on July 15, 1997.
See notes to financial statements.
S-125
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1997 1996
--------- --------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ (4,547) $ 27,835
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation............................................. 30,048 11,538
Amortization of unearned stock compensation.............. 3,312 630
Amortization of deferred loan costs...................... 1,342 273
Amortization of lease inducement costs................... 102 76
Amortization of goodwill................................. 538 --
Other amortization....................................... 90 90
Cost of acquiring leaseholds............................. 43,820 --
Payment of interest on notes receivable from unconsoli-
dated subsidiaries...................................... 3,448 3,204
Accrued interest receivable.............................. (1,095) --
Issue common stock to directors.......................... -- 37
Equity in earnings of unconsolidated subsidiaries........ (4,488) (4,377)
Minority interest in income of Patriot REIT Partnership.. 1,194 5,142
Minority interest in income of other consolidated subsid-
iaries.................................................. 1,368 2
Extraordinary loss from early extinguishment of debt..... 2,534 --
Changes in assets and liabilities:
Lease revenue receivable................................. (13,475) (5,611)
Receivables from Lessees and their affiliates............ 150 --
Prepaid expenses and other assets........................ (747) (53)
Accounts payable and other accrued expenses.............. 14,481 1,259
Due to unconsolidated subsidiaries....................... (130) (45)
Due to PAH RSI, L.L.C.................................... (6,709) --
--------- --------
Net cash provided by operating activities............... 71,236 40,000
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel properties and related working capi-
tal assets.............................................. (502,413) (278,725)
Improvements and additions to hotel properties........... (53,168) (9,085)
Net proceeds from land sale.............................. 77,226 --
Acquisition of hotel properties funded from restricted
cash.................................................... (39,142) --
Restricted cash escrow................................... (38,196) --
Collection of receivables from selling entities.......... 525 1,003
Prepaid acquisition costs................................ (11,014) 246
Investment in unconsolidated subsidiaries................ (1,574) --
Investment in mortgage and promissory notes receivable
from Lessees and their affiliates....................... (112,625) --
Investment in mortgage note receivable from unconsoli-
dated subsidiaries...................................... -- (31,400)
Principal payment received on mortgage note receivable... -- 298
Principal payment received on other note receivable...... -- 101
--------- --------
Net cash used in investing activities................... (680,381) (317,562)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line of credit facility and mortgage
notes................................................... 1,300,820 295,555
Repay borrowings under line of credit facility........... (822,226) (191,463)
Payment of deferred loan costs........................... (18,723) (1,184)
Payments for capital leases.............................. (22) --
Principal payments on subscription notes receivable...... (35,486) --
Proceeds of equity offerings and private placement....... 241,223 213,061
Payment of offering costs................................ (12,602) (13,884)
Proceeds from exercise of options to purchase common
stock................................................... 2,298 --
Contribution received from minority interest in consoli-
dated subsidiaries...................................... 16,204 3,213
Payments to redeem OP Units.............................. (14,596) --
Dividends and distributions paid......................... (44,017) (25,501)
--------- --------
Net cash provided by financing activities............... 612,873 279,797
--------- --------
Net increase in cash and cash equivalents................. 3,728 2,235
Cash and cash equivalents at beginning of period.......... 6,604 4,769
--------- --------
Cash and cash equivalents at end of period................ $ 10,332 $ 7,004
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest................ $ 9,205 $ 4,243
========= ========
</TABLE>
See notes to financial statements.
S-126
<PAGE>
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
-------------
(UNAUDITED)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 11,183
Accounts receivable........................................... 23,165
Subscription notes receivable................................. 24,170
Inventories................................................... 1,531
Prepaid expenses and other current assets..................... 3,880
--------
Total current assets........................................ 63,929
Investment in furniture, fixtures and equipment, net of accumu-
lated depreciation of $491..................................... 17,929
Management contracts, net....................................... 22,453
Trade names and franchise costs, net............................ 2,500
Deferred acquisition costs...................................... 24,234
Goodwill, net of accumulated amortization of $178............... 34,307
Other assets, net of accumulated amortization of $474........... 293
Deferred income taxes........................................... 700
--------
Total assets................................................ $166,345
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses......................... $ 10,837
Accrued liabilities........................................... 13,633
Dividends and distributions payable........................... 426
Participating lease payments payable.......................... 4,706
Sales taxes payable........................................... 2,968
Deposits...................................................... 2,037
--------
Total current liabilities................................... 34,607
Deferred income tax liability................................... 4,846
Other liabilities............................................... 1,844
Minority interest in Patriot Operating Company Partnership...... 39,078
Commitments and contingencies................................... --
Shareholders' equity:
Preferred stock, $0.01 par value; authorized: 100,000,000
shares;
no shares issued and outstanding............................. --
Excess stock, $0.01 par value; authorized: 750,000,000 shares;
no shares issued and outstanding............................. --
Common stock, $0.01 par value; authorized: 650,000,000 shares;
issued and outstanding: 68,005,704 shares.................... 680
Paid-in capital............................................... 84,581
Retained earnings............................................. 709
--------
Total shareholders' equity.................................. 85,970
--------
Total liabilities and shareholders' equity.................. $166,345
========
</TABLE>
See notes to financial statements.
S-127
<PAGE>
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
1997
-------------------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C>
Revenue:
Room revenue....................................... $ 20,437
Other hotel revenue................................ 9,834
Racecourse facility revenue........................ 10,861
Management fee and service fee income.............. 1,577
Interest and other income.......................... 1,475
--------
Total revenue.................................... 44,184
--------
Expenses:
Departmental costs--hotel operations............... 10,032
Racecourse facility operations..................... 10,536
Direct operating costs of management company and
service department................................ 260
General and administrative......................... 4,081
Repair and maintenance............................. 1,186
Utilities.......................................... 1,450
Marketing.......................................... 3,122
Management fees.................................... 699
Depreciation and amortization...................... 1,142
Participating lease payments....................... 10,686
Interest expense................................... 11
Real estate and personal property taxes and casu-
alty insurance.................................... 48
--------
Total expenses................................... 43,253
--------
Income before income tax provision and minority in-
terests............................................. 931
Income tax provision............................... (94)
--------
Income before minority interests..................... 837
Minority interest in Patriot Operating Company
Partnership....................................... (115)
Minority interest in other consolidated subsidiar-
ies............................................... (13)
--------
Net income applicable to common shareholders......... $ 709
========
Net income per common share.......................... $ 0.01
========
</TABLE>
See notes to financial statements.
S-128
<PAGE>
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
1997
--------------
(IN THOUSANDS)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 709
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 491
Amortization of management contracts and trade names........ 469
Amortization of goodwill.................................... 178
Other amortization.......................................... 3
Accrued interest receivable................................. (402)
Minority interest in income of Patriot Operating Company
Partnership................................................ 115
Minority interest in income of other consolidated subsidiar-
ies........................................................ 13
Changes in assets and liabilities:
Accounts receivable......................................... (12,910)
Prepaid expenses and other assets........................... (2,365)
Accounts payable and other accrued expenses................. 14,860
Deposits.................................................... 1,418
Accrued rent due to Patriot REIT............................ 2,071
--------
Net cash provided by operating activities................. 4,650
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of hotel furniture and fixtures and related work-
ing capital assets........................................... (5,321)
Improvements and additions to furniture and fixtures.......... (593)
Prepaid acquisition costs..................................... (23,832)
--------
Net cash used in investing activities..................... (29,746)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of merger related costs............................... (11,414)
Payments received on subscription notes receivable............ 35,486
Capital leases................................................ 141
Proceeds of equity offering................................... 12,066
--------
Net cash provided by financing activities................. 36,279
--------
Net increase in cash and cash equivalents....................... 11,183
Cash and cash equivalents at beginning of period................ --
--------
Cash and cash equivalents at end of period...................... $ 11,183
========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes.................. $ 142
========
</TABLE>
See notes to financial statements.
S-129
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
The entity formerly known as Patriot American Hospitality, Inc.
(collectively with its subsidiaries, "Old Patriot REIT"), a Virginia
corporation, was formed April 17, 1995 as a self-administered real estate
investment trust ("REIT") for the purpose of acquiring equity interests in
hotel properties. On October 2, 1995, Old Patriot REIT completed an initial
public offering (the "Initial Offering") of 29,210,000 shares of its common
stock and commenced operations.
On July 1, 1997, Old Patriot REIT merged with and into California Jockey
Club ("Cal Jockey"), with Cal Jockey being the surviving legal entity (the
"Cal Jockey Merger"). Cal Jockey's shares of common stock are paired and trade
together with the shares of common stock of Bay Meadows Operating Company
("Bay Meadows") as a single unit pursuant to a stock pairing arrangement. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to "Patriot
American Hospitality, Inc." ("Patriot REIT") and Bay Meadows changed its name
to "Patriot American Hospitality Operating Company" (collectively with its
subsidiaries, "Patriot Operating Company"). The term "Patriot Companies" as
used herein includes Patriot REIT, Patriot Operating Company and their
respective subsidiaries. Patriot REIT and Patriot Operating Company are both
Delaware corporations.
The Cal Jockey Merger has been accounted for as a reverse acquisition
whereby Cal Jockey is considered to be the acquired company for accounting
purposes. Consequently, the historical financial information of Old Patriot
REIT became the historical financial information for Patriot REIT. For
accounting purposes, Patriot Operating Company commenced its operations
concurrent with the closing of the Cal Jockey Merger on July 1, 1997. The
interim financial statements have been adjusted for the purchase method of
accounting whereby the Bay Meadows Racecourse ("Racecourse") facilities and
related leasehold improvements owned by Cal Jockey and Bay Meadows have been
adjusted to estimated fair market value. The excess purchase consideration
over the estimated fair market value of the assets acquired and the
liabilities assumed was recorded as goodwill.
By operation of the Cal Jockey Merger, each issued and outstanding share of
common stock, no par value per share of Old Patriot REIT ("Old Patriot REIT
Common Stock") was converted into 0.51895 shares of common stock, par value
$0.01 per share of Patriot REIT ("Patriot REIT Common Stock") and 0.51895
shares of common stock, par value $0.01 per share of Patriot Operating Company
("Patriot Operating Company Common Stock"), which shares are paired and
transferable only as a single unit (collectively, shares of Patriot REIT
Common Stock and shares of Patriot Operating Company Common Stock are referred
to herein as the "Paired Shares"). Each paired share of Cal Jockey and Bay
Meadows common stock remained outstanding and represented the same number of
Paired Shares of Patriot REIT Common Stock and Patriot Operating Company
Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed an operating
partnership, Patriot American Hospitality Operating Partnership, L.P. (the
"Patriot Operating Company Partnership") into which Bay Meadows contributed
its assets in exchange for units of limited partnership interest ("OP Units")
of the Patriot Operating Company Partnership, and Cal Jockey contributed
certain of its assets to Patriot American Hospitality Partnership, L.P. (the
"Patriot REIT Partnership") in exchange for OP Units of the Patriot REIT
Partnership (collectively, the Patriot Operating Company Partnership and the
Patriot REIT Partnership are referred to herein as the "Patriot
Partnerships"). Subsequent to completion of the Cal Jockey Merger and the
transactions contemplated by the Cal Jockey Merger Agreement (the "Related
Transactions"), substantially all of the operations of Patriot REIT and
Patriot Operating Company have been conducted through the Patriot Partnerships
and their subsidiaries.
S-130
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Patriot REIT, through its wholly owned subsidiary, PAH GP, Inc., is the sole
general partner and the holder of a 1.0% general partnership interest in the
Patriot REIT Partnership. In addition, Patriot REIT, through its wholly-owned
subsidiary, PAH LP, Inc., owns an approximate 82.9% limited partnership
interest in the Patriot REIT Partnership as of September 30, 1997.
Patriot Operating Company owns a 1.0% general partnership interest and an
approximate 81.5% limited partnership interest in the Patriot Operating
Company Partnership.
At September 30, 1997, Patriot REIT, through the Patriot REIT Partnership
and other subsidiaries, owned interests in 76 hotels with an aggregate of over
18,800 guest rooms. Patriot REIT leases each of its hotels, except the Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel, which are separately
owned through special purpose entities, to Patriot Operating Company or to
other lessees (the "Lessees") who are responsible for operating the hotels. At
September 30, 1997, Patriot REIT leased 17 of its hotel investments to CHC
Lease Partners for staggered terms of ten to twelve years pursuant to separate
participating leases providing for the payment of the greater of base or
participating rent, plus certain additional charges, as applicable (the
"Participating Leases"). Twelve of the hotels were leased to NorthCoast
Hotels, L.L.C. ("NorthCoast Lessee") under similar Participating Lease
agreements. DTR North Canton, Inc. (the "Doubletree Lessee") leased four
hotels; PAH RSI, LLC ("PAH RSI Lessee") leased eight hotels; Crow Hotel
Lessee, Inc. (the "Wyndham Lessee") leased two hotels; and Metro Hotels
Leasing Corporation ("Metro Lease Partners") leased one hotel under similar
Participating Lease agreements. The Lessees, in turn, have entered into
separate agreements with hotel management entities (the "Operators") to manage
the hotels. The Crowne Plaza Ravinia Hotel and the Wyndham WindWatch Hotel
acquisitions were structured without lessees and are managed directly by
Holiday Inns, Inc. and Wyndham Hotel Corporation, respectively. At September
30, 1997, Patriot Operating Company leased 29 hotels and an affiliate leased
one hotel from Patriot REIT pursuant to Participating Lease agreements which
are substantially similar to the Participating Lease agreements of the
Lessees. Patriot Operating Company manages 14 of these hotels through certain
of its hotel management subsidiaries and has entered into separate management
agreements with hotel Operators to manage 16 of the hotels.
These unaudited consolidated financial statements include the accounts of
Patriot REIT and Patriot Operating Company, their respective wholly-owned
subsidiaries and the partnerships, corporations and limited liabilities
companies in which Patriot REIT or Patriot Operating Company owns at least 50%
controlling interest. All significant intercompany accounts and transactions
have been eliminated. The separate consolidated financial statements of
Patriot REIT and Patriot Operating Company have also been combined for
purposes of financial statement presentation. Certain intercompany balances,
including income and expense related to the Participating Leases and
Racecourse facility leased by Patriot REIT to Patriot Operating Company and
interest income and expense related to certain notes between Patriot REIT and
Patriot Operating Company (see Note 6), have been eliminated.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. For further information, refer to the consolidated
financial statements and
S-131
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
footnotes thereto included in Old Patriot REIT's Annual Report on Form 10-K
for the year ended December 31, 1996 and Cal Jockey's and Bay Meadows' Joint
Annual Report on Form 10-K for the year ended December 31, 1996. Certain prior
year amounts have been reclassified to conform to current period presentation.
On January 30, 1997, the Board of Directors declared a 2-for-1 stock split
on Old Patriot REIT Common Stock effected in the form of a stock dividend
distributed on March 18, 1997 to shareholders of record on March 7, 1997.
In addition, on July 10, 1997, the respective Boards of Directors of Patriot
REIT and Patriot Operating Company declared a 1.927-for-1 stock split on its
shares of common stock effected in the form of a stock dividend distributed on
July 25, 1997 to shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the combined and consolidated
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock have been
restated to reflect the impact of the conversion of each share of Old Patriot
REIT Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger
and the 1.927-for-1 stock split. In addition, all references in the combined
and consolidated financial statements to the number of shares, per share
amounts, and market prices of the common stock and options to purchase common
stock related to periods prior to the 2-for-1 stock split distributed in March
1997 have been restated to reflect the impact of such stock split.
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger
and the 1.927-for-1 stock split in July 1997, the number of OP Units
outstanding and the OP Unit conversion factor have been adjusted to re-
establish a 1-for-1 exchange ratio of OP Units to common shares.
Earnings per share is computed based on 63,654 and 39,682 weighted average
common shares and common share equivalents outstanding for the three months
ended September 30, 1997 and 1996, respectively, and 51,104 and 33,186
weighted average common shares and common share equivalents outstanding for
the nine months ended September 30, 1997 and 1996, respectively. In February
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" ("Statement 128"). Statement
128 specifies the computation, presentation and disclosure requirements for
basic earnings per share and diluted earnings per share. Management believes
that adoption of Statement 128 will not have a material effect on the Patriot
Companies' earnings per share information presented herein.
Repairs and maintenance of hotel properties owned by Patriot REIT are paid
by the Lessees. Major renewals and betterments are capitalized. Interest
associated with borrowings used to finance substantial hotel additions is
capitalized and depreciated over the estimated useful life of the assets.
Interest of $1,307 was capitalized for the nine months ended September 30,
1997. No interest was capitalized for the nine months ended September 30,
1996.
Goodwill recognized in connection with the acquisition of certain businesses
is amortized utilizing the straight-line method over a period of 20 to 40
years. Trade names acquired are amortized utilizing the straight-line method
over an estimated useful life of 20 years and management contracts are
amortized utilizing the straight-line method over the estimated remaining term
of the respective contract.
S-132
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. INVESTMENTS IN HOTEL PROPERTIES AND LAND HELD FOR DEVELOPMENT:
Investments in Hotel Properties
During the first six months of 1997, Old Patriot REIT acquired six hotels
and four resort properties for approximately $360,500 (including closing
costs). These acquisitions were financed primarily with funds drawn on Old
Patriot REIT's line of credit facility, the issuance of 1,295,077 OP Units
valued at approximately $58,662, and the assumption of mortgage debt in the
amount of approximately $28,489.
During the third quarter of 1997, Patriot REIT, through the Patriot REIT
Partnership and its subsidiaries, has invested approximately $443,000 in the
acquisition of 20 hotels with a total of 5,513 guest rooms. These acquisitions
were financed primarily with funds drawn on Patriot REIT's revolving credit
facility (which replaced Old Patriot REIT's line of credit, see Note 8), the
issuance of 1,848,424 OP Units valued at approximately $41,900, and the
assumption of mortgage debt in the amount of approximately $5,774.
Like-Kind Exchange of Properties
On July 14, 1997, Patriot REIT sold approximately 174 acres of land in San
Mateo, California, representing substantially all of the land which was owned
by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
Incorporated ("PaineWebber") for a purchase price of approximately $80,864
(the "PaineWebber Land Sale"). These funds were placed in a restricted trust
account in order to facilitate a tax-deferred, like-kind exchange through the
acquisition of suitable hotel properties. During July 1997, three suitable
hotels were acquired using a portion of the proceeds from this restricted
account. Patriot REIT retained ownership of the improvements located on the
land, including the Racecourse and its related facilities.
Land Leases
Simultaneous with the consummation of the PaineWebber Land Sale, the
PaineWebber affiliate and Patriot REIT entered into a ground lease covering a
portion of the land on which the Racecourse is situated for a term of seven
years. The lease provides for quarterly rental payments of $750 through March
1998, $813 through March 1999, $875 through March 2000, $1,000 through March
2002 and $1,250 through July 2004. Patriot REIT has subleased the Racecourse
land and leased the related improvements to Patriot Operating Company in order
to permit Patriot Operating Company to continue horseracing operations at the
Racecourse through the term of Patriot REIT's lease. The sublease is for a
term of seven years with annual payments based on percentages of revenue
generated. In addition, Patriot REIT has leased certain land adjacent to the
Racecourse to Borders, Inc. (the "Borders Lease") for an initial term of 20
years with a fixed net annual rent of $279 for years 1 through 10, $362 for
years 11 through 15 and $416 for years 16 through 20. In connection with the
sale, Patriot REIT assigned all of its rights and benefits under existing
leases, contracts, permits and entitlements relating to the land sold
(excluding the Borders Lease) to the PaineWebber affiliate, and the
PaineWebber affiliate assumed all of Patriot REIT's development obligations
including, but not limited to, all obligations for on and off-site
improvements and all obligations under existing lease and contracts. The
parties have the option to renew such leases upon their expiration under
certain circumstances.
Land Held for Development
In connection with the acquisition of four resort properties, Patriot REIT
acquired certain land held for development, including commercial and
residential land and construction in progress of single-family homes. A
balance of approximately $22,326 of land held for development is included in
Investment in Hotel Properties
S-133
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
and Land Held for Development in the accompanying balance sheet as of
September 30, 1997. Patriot REIT recorded proceeds of approximately $6,601 as
a result of land sales for the nine months ended September 30, 1997 which was
recorded as a reduction in the basis of land held for development.
3. PARTICIPATING NOTE AND DEFERRED ACQUISITION COSTS:
On August 1, 1997, Patriot Operating Company purchased a participating loan
from National Resort Ventures, L.P., a Delaware limited partnership, related
to the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 in
cash. The Buena Vista Palace Hotel is owned by a joint venture between
Equitable Life Insurance Company who owns a 55% interest and Hotel Venture
Partners, Ltd., a Florida limited partnership ("HVP"), who owns a 45%
interest. The loan is subordinated to a ground lease, a $50,700 first
leasehold mortgage loan and a separate $8,500 participating loan. See Note 14.
4. OTHER BUSINESSES ACQUIRED:
Grand Heritage
In August 1997, the Patriot Companies acquired Grand Heritage Hotels, Inc. a
hotel management and marketing company, and other Grand Heritage subsidiaries
including Grand Heritage Leasing, L.L.C. which leased three hotels from
Patriot REIT (the "Grand Heritage Acquisition"). The total purchase price for
the Grand Heritage Acquisition was approximately $22,500 which was financed
primarily through the issuance of 931,972 Class A preferred OP Units of the
Patriot Operating Company Partnership.
Grand Heritage Hotels, Inc., directly and through certain of its
subsidiaries, owns 18 management contracts, five of which are related to
hotels leased by Patriot Operating Company.
Gencom American Hospitality and CHC International, Inc.
Effective September 1, 1997, Patriot REIT acquired the leasehold interests
related to seven Patriot REIT hotels which were previously leased by CHC Lease
Partners and re-leased such hotels to Patriot Operating Company. Prior to such
acquisition, the management contracts with GAH-II, L.P. ("GAH"), an affiliate
of CHC International, Inc. ("CHCI") and the Gencom American Hospitality group
of companies ("Gencom"), along with the leaseholds related to the seven hotels
were terminated. The aggregate purchase price of the seven leasehold interests
was approximately $43,820, which is reflected as a cost of acquiring
leaseholds in the accompanying statements of operations of Patriot REIT. In a
related transaction effective October 1, 1997, Patriot REIT acquired one
additional leasehold interest related to a Patriot REIT hotel previously
leased by CHC Lease Partners and re-leased such hotel to Patriot Operating
Company (the hotel's management contract with CHCI was also terminated prior
to the acquisition). Concurrently, Patriot Operating Company purchased an
approximate 50% managing, controlling ownership interest in GAH from
affiliates of Gencom for a purchase price of approximately $13,860. These
transactions were financed with approximately $644 of cash, and by issuing
2,388,932 paired OP Units of the Patriot REIT Partnership and the Patriot
Operating Company Partnership and 476,682 preferred OP Units of Patriot
Operating Company Partnership.
GAH, directly and through certain of its subsidiaries, owns nine management
contracts related to hotels leased by Patriot Operating Company, 15 third-
party management contracts, and certain other hospitality management assets.
Concurrent with Patriot Operating Company's purchase of its controlling
interest in GAH, Patriot Operating Company also entered into a Hospitality
Advisory, Asset Management and Support Services
S-134
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Agreement with CHCI and GAH whereby Patriot Operating Company will provide
certain hospitality advisory, asset management and support services to certain
CHCI and GAH subsidiaries for a base fee aggregating approximately $750 per
month plus a percentage of excess cash flows of the hotels.
Patriot REIT, Patriot Operating Company and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 (the "CHCI Merger
Agreement"), providing, subject to regulatory approvals, for the merger of the
hospitality-related businesses of CHCI with and into Patriot Operating Company
with Patriot Operating Company being the surviving company (the "CHCI
Merger"). Subject to regulatory approvals, CHCI's gaming operations will be
transferred to a new legal entity prior to the CHCI Merger and such operations
will not be a part of the transaction. It is anticipated that the CHCI Merger
will be consummated in the first or second quarter of 1998, although the
precise timing is subject to receipt of all necessary regulatory approvals. As
a result of the CHCI Merger, Patriot Operating Company, through its
subsidiaries, will acquire the remaining 50% investment interest in GAH, the
remaining 17 leases and 16 of the associated management contracts related to
the Patriot REIT hotels leased by CHC Lease Partners, 3 management contracts
related to Patriot REIT hotels leased by Patriot Operating Company, 12 third-
party management contracts, 2 third-party lease contracts, the Grand Bay and
Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Patriot Operating Company has also agreed to
provide CHCI with a $7,000 line of credit until such time as the CHCI Merger
is completed.
By operation of the CHCI Merger, each issued and outstanding share of common
stock, par value $0.005 per share, of CHCI ("CHCI Shares") and certain stock
option rights will be converted into the right to receive shares of Series A
Redeemable Convertible Preferred Stock, par value $0.01 per share of Patriot
Operating Company (the "Series A Preferred Stock") and shares of Series B
Redeemable Convertible Preferred Stock, par value $0.01 per share, of Patriot
Operating Company (the "Series B Preferred Stock"). The formula for
determining the exchange ratio of CHCI Shares for Series A Preferred Stock and
Series B Preferred Stock is based on issuing an aggregate of approximately
4,396,000 shares of Patriot Operating Company preferred stock (based on an
aggregate purchase value of approximately $102,200 and a market price per
paired share of $23.25), subject to reduction if certain specified events
occur and subject to increase representing adjustments for dividends paid on
paired shares of Patriot REIT and Patriot Operating Company common stock after
September 30, 1997. Generally, the aggregate number of shares of Patriot
Operating Company preferred stock that each shareholder shall have the right
to receive pursuant to the CHCI Merger shall consist of, to the extent
possible, an equal number of Series A Preferred Stock and the Series B
Preferred Stock.
In connection with the acquisition of GAH, preferred OP Units of the Patriot
Operating Company Partnership with a value of approximately $5,000 have been
held back and the CHCI Merger equity consideration is subject to reduction in
the amount of approximately $5,000 if the hotels and leaseholds acquired fail
to achieve certain operating targets over the period prior to the closing of
the CHCI Merger.
In addition, on September 30, 2000 and September 30, 2002, Patriot Operating
Company may be obligated to pay the CHCI stockholders and a subsidiary of
Patriot Operating Company may be obligated to pay a Gencom-related entity
additional consideration, in each case based upon the delivery and performance
of certain specified assets.
5. INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES:
In January 1997, in connection with the acquisition of four resort
properties, Patriot REIT, through the Patriot REIT Partnership, contributed
certain assets associated with these resorts (including the right to receive
S-135
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
certain royalty fees) valued at $1,574 in exchange for an approximate 99% non-
voting ownership interest in PAH Boulders, Inc., a Virginia corporation. The
controlling 1% voting ownership interest in PAH Boulders, Inc. is held by
certain executive officers of Patriot.
6. MORTGAGE AND PROMISSORY NOTES AND OTHER RECEIVABLES FROM LESSEES AND THEIR
AFFILIATES:
Mortgage Notes
In June 1997, Patriot REIT loaned approximately $20,500 to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot REIT loaned approximately $25,600
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House
Hotel). Both loans mature in two years, bear interest at a rate per annum
equal to 30-day LIBOR plus 2.75%, and are secured by first priority liens on
the respective hotels. Additionally, Patriot REIT purchased two additional
loans from a financial institution on which partnerships affiliated with the
members of CHC Lease Partners were borrowers for an aggregate purchase price
of $57,000. One of the purchased loans, in the principal amount of
approximately $30,700, matures in December 2000 and bears interest at a rate
per annum equal to 8.0% until November 30, 1997, 8.5% from December 1, 1997
until November 30, 1999, and 9.0% from December 1, 1999 until December 1,
2000. The second purchased loan, in the principal amount of approximately
$24,400, matures on December 31, 1999 and bears interest at a rate per annum
equal to 8.0% until December 31, 1997 and 9.5% from January 1, 1998 until
December 31, 1999. Each of the purchased loans is secured by first priority
liens on the respective hotels. The notes contain certain penalties for early
repayment. In connection with such loans, Patriot REIT entered into a short-
term financing arrangement (the "PaineWebber Mortgage Financing") with an
affiliate of PaineWebber Real Estate Securities, Inc. ("PaineWebber Real
Estate") whereby such affiliate loaned Patriot REIT $103,000 to fund these
transactions (see Note 8). In September 1997, Patriot REIT, through the
Patriot REIT Partnership and certain other subsidiaries, acquired the
Doubletree Hotel in Glenview, Illinois. The $20,500 note balance and related
intercompany interest income and expense has been eliminated in consolidation.
See Note 14.
PAH RSI Lessee
In connection with the four resort properties, the Patriot REIT Partnership
and certain of its subsidiaries acquired certain assets relating to these
resorts and then sold these assets to PAH RSI Lessee for approximately $2,000.
In addition, PAH RSI Lessee acquired from the Patriot REIT Partnership and
certain of its subsidiaries certain trade names and the right to receive
royalty fees through the issuance of a promissory note for $9,000. The
principal amount of the note is due January 17, 2002. Interest at an annual
rate of 13% is payable semi-annually commencing July 1, 1997. See Note 14.
NorthCoast Lessee
In March 1997, the Patriot REIT Partnership advanced $500 to the NorthCoast
Lessee for construction of laundry facilities at the Hyatt Regency in
Lexington, Kentucky. Interest accrues on the outstanding note balance at a
rate of 9.6% per annum. Monthly payments of principal and interest are
required in an amount sufficient to pay accrued interest and amortize the
principal balance over the 3-year loan term. The note may be prepaid without
penalty.
7. SUBSCRIPTION NOTES:
In order to effect the issuance of the paired shares of common stock and OP
Units which were issued in the Cal Jockey Merger, Patriot REIT Partnership
subscribed for shares of Bay Meadows common stock (which
S-136
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
became shares of Patriot Operating Company Common Stock) in an amount equal to
the number of shares of Patriot REIT Common Stock that were issued to Old
Patriot REIT stockholders in the Cal Jockey Merger. In addition, Patriot REIT
Partnership similarly subscribed for OP Units in the Patriot Operating Company
Partnership in an amount equal to the number of OP Units of Patriot REIT
Partnership that were outstanding subsequent to the Cal Jockey Merger. These
subscriptions were funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Patriot
Operating Company. The Subscription Notes accrue interest at a rate of 8% per
annum and mature December 31, 1997. As of September 30, 1997, the Subscription
Notes balance remaining outstanding was $24,170. The combined statements of
operations for the three months and the nine months ended September 30, 1997
reflect the elimination of $727 of interest income and expense related to the
Subscription Notes.
8. LINE OF CREDIT AND MORTGAGE NOTES:
Borrowings under the revolving credit facility and other mortgage notes
consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Revolving Credit Facility........................ $455,542 $ --
Line of credit................................... -- 192,339
Mortgage note payable to PaineWebber Real Estate
Securities, Inc. (the "Greenspoint Loan")....... 22,000 22,000
PaineWebber Mortgage Financing................... 103,000 --
Mortgage notes payable to Metropolitan Life In-
surance Company................................. 98,892 --
Mortgage note payable to First National Bank of
Commerce........................................ 13,500 --
First mortgage loan payable bears interest at
9.75% per annum, requires monthly payments of
principal and interest with balloon payment due
May 31, 2005.................................... 5,754 --
Senior note payable to FINOVA Capital Corpora-
tion............................................ 18,758 --
Junior note payable to FINOVA Capital Corpora-
tion............................................ 8,830 --
Interest payable to FINOVA Capital Corporation... 901 --
-------- --------
$727,177 $214,339
======== ========
</TABLE>
Revolving Credit Facility
On July 21, 1997, the Patriot Companies entered into a revolving credit
facility with PaineWebber Real Estate, The Chase Manhattan Bank ("Chase") and
certain other lenders for a 3-year $700,000 unsecured revolving line of credit
(the "Revolving Credit Facility"). See Note 14 for discussion of negotiations
in process to modify certain terms of the Revolving Credit Facility.
Borrowings have been made under the Revolving Credit Facility to repay all
outstanding amounts under Old Patriot REIT's secured line of credit with Paine
Webber Real Estate (the "Old Line of Credit"). The Revolving Credit Facility
may also be used for acquisition of additional properties, businesses and
other assets, for capital expenditures and for general working capital
purposes. The interest rate for the Revolving Credit Facility ranges from
LIBOR plus 1.0% to 2.0% (depending on the Patriot Companies' leverage ratio or
investment grade ratings received from the rating agencies) or the customary
alternate base rate announced from time to time plus 0.0% to 0.5% (depending
on the Patriot Companies' leverage ratio). The weighted average interest rate
in effect for the Revolving Credit Facility for the period ended September 30,
1997 was 7.62% per annum.
S-137
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Additionally, Patriot REIT has entered into a commitment letter with
PaineWebber Real Estate and Chase for a $500,000 term loan (the "Term Loan").
See Note 14 for discussion of negotiations in process to modify the Term Loan
commitment. It is anticipated that the Term Loan will be secured by specific
assets and properties of the Patriot Companies that will be transferred to a
special purpose "bankruptcy remote" entity. The Term Loan will be used to
finance payments to be made in connection with the acquisition of certain
properties and is expected to have an interest rate per annum equal to LIBOR
plus 1.75%.
The Patriot Companies have entered into three interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for fixed rate
interest amounts as a hedge against $375,000 of the $700,000 Revolving Credit
Facility. Each of the interest rate swaps covers $125,000 of borrowings under
the Revolving Credit Facility and fixes the LIBOR portion of the Revolving
Credit Facility interest rate at 6.09%, 6.255%, and 6.044%, respectively. The
interest rate swap arrangements expire November 2002.
Mortgage Notes
PaineWebber Real Estate has also extended a $22,000 single asset loan
related to the Wyndham Greenspoint Hotel (the "Greenspoint Loan") on economic
terms substantially similar to the Old Line of Credit. The Greenspoint Loan
bears interest on the outstanding balance at a rate per annum equal to 30-day
LIBOR plus 1.90%. LIBOR was 5.69% at September 30, 1997 and 5.56% at December
31, 1996. The weighted average interest rate incurred by Patriot REIT under
this borrowing was 7.58% and 7.37% for the three months ended September 30,
1997 and 1996, respectively, and 7.50% and 7.41% for the nine months ended
September 30, 1997 and 1996, respectively.
In connection with Patriot REIT's funding of two mortgage loans and the
purchase of two mortgage notes related to four hotels owned by partnerships
affiliated with CHC Lease Partners (see Note 6), Patriot REIT entered into the
PaineWebber Mortgage Financing, whereby such affiliate loaned Patriot REIT
$103,000 through April 15, 1998 at a rate equal to the greater of 30-day LIBOR
plus 1.75% or the borrowing rate on the Revolving Credit Facility. The
weighted average interest rate incurred under this borrowing was 7.50% for the
period ended September 30, 1997. This financing is secured by a collateral
assignment of the mortgage loans encumbering the four hotels. See Note 14.
In connection with the purchase of four hotels in September 1997, Patriot
REIT obtained $98,892 of mortgage financing with Metropolitan Life Insurance
Company encumbering six hotels. The loans bear interest at 8.08% per annum,
require monthly payments of principal and interest in the aggregate amount of
$755, and mature October 1, 2007.
On January 17, 1997, Patriot REIT, through the Patriot REIT Partnership,
obtained financing from the First National Bank of Commerce, New Orleans,
Louisiana in the amount of $13,500. The net proceeds from the financing of
approximately $13,388 were used to repay the Line of Credit and release the
Bourbon Orleans Hotel from the borrowing base of the Line of Credit. The
principal amount of the note along with accrued interest is due January 1,
2004. Interest at a rate of LIBOR plus 2% is payable monthly commencing
February 1, 1997 through January 1, 1999. Thereafter, monthly payments of
principal and interest are due through maturity. The weighted average interest
rate incurred by Patriot REIT under this borrowing during the three months and
the nine months ended September 30, 1997 was 7.58% and 7.50%, respectively.
The note is collateralized by a first mortgage lien on the Bourbon Orleans
Hotel.
In connection with the acquisition of the four resort properties, Patriot
REIT assumed certain mortgage debt in the amount of $28,489 which is
collateralized by the property and equipment at The Lodge at Ventana
S-138
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Canyon. The senior and junior notes payable to FINOVA Capital Corporation
("FINOVA") provide for annual interest to accrue at a rate of 6.5% (computed
based on stated interest payment amounts); however, through March 1, 1998,
actual interest paid is dependent on the attainment of certain levels of
annual cash flows, as defined, of The Lodge at Ventana Canyon. Any interest
that accrues on the notes which is unpaid during this period is added to the
senior note balance. If The Lodge at Ventana Canyon is sold after March 1,
2000 and distributions of the net sales proceeds, as defined, are made to
FINOVA in accordance with the terms specified in the related purchase
agreement, any remaining unpaid balance on the junior note may be deemed
discharged. Except as noted above, all unpaid principal and interest is due
upon maturity on March 1, 2005.
Patriot REIT also has a construction loan available from FINOVA that was
assumed in connection with the acquisition of The Lodge at Ventana Canyon.
Under the terms of the construction loan agreement, FINOVA is required to loan
to Patriot REIT a maximum of $4,500 (approximately 60% of the budgeted
construction cost) for the planned expansion of The Lodge at Ventana Canyon.
No funds have been drawn under this agreement by Patriot REIT as of September
30, 1997.
9. MINORITY INTERESTS:
Minority Interest in Patriot Partnerships
As a result of the 2-for-1 stock split in March 1997, the Cal Jockey Merger
and the 1.927-for-1 stock split in July 1997, the number of OP Units
outstanding and the OP Unit conversion factor were adjusted to re-establish a
1-for-1 exchange ratio of OP Units to common shares.
During the first six months of 1997, the Patriot REIT Partnership issued an
additional 20,376 OP Units valued at approximately $370 in connection with The
Tutwiler Hotel acquisition, and 2,590,197 OP Units valued at approximately
$58,662 in connection with the acquisition of the four resort properties. In
accordance with their redemption rights, during the first six months of 1997
certain partners elected to redeem a total of 379,606 OP Units for a total of
$14,441 in cash (based upon the market price of Old Patriot REIT Common Stock
on the effective dates of the redemptions) and 150,000 shares of Old Patriot
REIT Common Stock (such amounts have not been adjusted to reflect the stock
splits and Cal Jockey Merger). As of June 30, 1997, the Patriot REIT
Partnership had 6,887,049 OP Units and 1,324,804 preferred OP Units
outstanding.
In connection with the Cal Jockey Merger, the holders of Patriot REIT
Partnership OP Units and preferred OP Units received OP Units and preferred OP
Units of the Patriot Operating Company Partnership in an amount equal to the
number of Patriot REIT Partnership units held by them at the closing of the
Cal Jockey Merger.
In addition, during the third quarter of 1997, the Patriot Partnerships each
issued 2,456,172 OP Units in connection with the acquisition of hotel
properties, and 2,388,932 OP Units in connection with Patriot REIT's
acquisition of eight leasehold interests from CHC Lease Partners and Patriot
Operating Company's acquisition of its approximate 50% ownership interest in
GAH and redeemed 6,298 OP Units. In addition, Patriot Operating Company
Partnership issued 931,972 Class A preferred OP Units in connection with the
Grand Heritage Acquisition and 476,682 Class C preferred OP Units in
connection with the acquisition of the approximate 50% ownership interest in
GAH.
As of September 30, 1997, Patriot REIT Partnership had 11,732,153 OP Units
and 1,324,804 preferred OP Units outstanding (excluding OP Units held by
Patriot REIT). The Patriot Operating Company Partnership had 11,732,153 OP
Units, 931,972 Class A preferred OP Units, 1,324,804 Class B preferred OP
Units and 476,682
S-139
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Class C preferred OP Units outstanding as of September 30, 1997 (excluding OP
Units held by Patriot Operating Company).
Minority Interest in Other Subsidiaries
Patriot REIT has entered into a number of partnership agreements with DTR
PAH Holding, Inc. ("DTR"), an affiliate of Doubletree Hotels Corporation,
related to the acquisition of 11 hotels. Patriot REIT Partnership owns an 85%
to 90% general partnership interest in each partnership and DTR owns a 15% to
10% limited partnership interest in each partnership. The partnerships were
formed for the purpose of acquiring hotel properties.
During the nine months ended September 30, 1997, Patriot REIT acquired four
hotels through such partnerships with DTR for approximately $147,300. The
acquisitions were financed through a combination of mortgage debt of $98,892,
cash contributions to the partnerships of approximately $26,300 by the Patriot
REIT Partnership and approximately $7,100 by DTR, and the issuance of 614,046
paired OP Units of the Patriot Partnerships (valued at approximately $15,000
based on the average market price of the Patriot Companies' common stock for
the 20 days prior to the closing of the acquisition). Patriot REIT
Partnership's contributions were financed primarily with funds drawn on the
Revolving Credit Facility.
In addition, in July 1997, Patriot REIT, through the Patriot REIT
Partnership, acquired 90% of the equity interests in four separate limited
liability companies which own four hotels with an aggregate of 705 guest rooms
for an aggregate purchase price of approximately $51,066. Patriot REIT
Partnership's contribution was financed primarily with funds drawn on the
Revolving Credit Facility. One of the hotels is subject to a mortgage loan
with a financial institution with a principal balance of approximately $5,754.
10. SHAREHOLDERS' EQUITY:
Capital Stock
On January 30, 1997, Old Patriot REIT declared a 2-for-1 stock split
effected in the form of a stock dividend, which was distributed on March 18,
1997 to shareholders of record on March 7, 1997.
On September 22, 1997, Patriot REIT declared a $0.2625 per common share
dividend to holders of record on September 30, 1997. Patriot REIT has paid
dividends of $0.2625 per common share for each of the first and second
quarters of 1997. In addition, in connection with the Cal Jockey Merger, Old
Patriot REIT also declared a special dividend of $0.06 per common share
payable to holders of record on June 27, 1997, which was paid on June 30,
1997. Concurrent with each of the dividend declarations, the Patriot REIT
Partnership authorized distributions in the same amount. Old Patriot REIT paid
dividends of $0.24 per common share for the each of the first three quarters
of 1996.
In August 1997, the Patriot Companies completed a public offering of
9,200,000 paired shares of common stock, with net proceeds (less underwriter
discount and expenses) of approximately $209,795. The net proceeds were used
primarily to reduce the outstanding debt under the Revolving Credit Facility.
In addition, in August 1997, the Patriot Companies' underwriters exercised the
over-allotment option and the Patriot Companies issued an additional 1,380,000
paired shares of common stock. The net proceeds of approximately $31,000 were
used to reduce the outstanding debt under the Revolving Credit Facility.
S-140
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stock Grant Awards
During the first quarter of 1997, pursuant to Old Patriot REIT's 1995
Incentive Plan, the Board of Directors awarded 480,007 shares of common stock
to two of its executive officers. During the second quarter of 1997, pursuant
to Old Patriot REIT's 1995 Incentive Plan, the Board of Directors awarded
63,700 shares of common stock to two other officers of the company. Patriot
has recorded in 1997 a total of $12,897 (the aggregate value of Patriot's
common stock based on the market price at the date of the award) as unearned
stock compensation, which is being amortized over the vesting periods of one
to five years. For the three months ended September 30, 1997 and 1996, $1,385
and $346, respectively, of amortization of stock compensation related to stock
grants awarded to Patriot's directors, officers and certain employees is
included in general and administrative expense in the accompanying
consolidated financial statements. For the nine months ended September 30,
1997 and 1996, $3,312 and $630, respectively, of amortization of stock
compensation related to stock grants awarded to Patriot's directors, officers
and certain employees is included in general and administrative expense in the
accompanying consolidated financial statements.
Stock Option Awards
In connection with the acquisition of four resort properties in January
1997, certain former owners of the resorts who are also employees of Resorts
Services, Inc., the company which manages the resorts, were granted
nonqualified options to purchase an aggregate of 780,008 shares of Old Patriot
REIT Common Stock at an exercise price of $19.125 (based on the market price
of Old Patriot REIT's common stock on the date the purchase contract for the
resorts was executed after giving effect to the March 1997 and July 1997 stock
splits and the Cal Jockey Merger) as additional consideration for entering
into the purchase and sale agreement for the resort properties. The estimated
fair value of the options issued, in the aggregate amount of $3,266, was
recorded as additional purchase consideration for the acquisition of the
resort properties. The options to purchase common stock vest annually over a
period of four years.
During the first quarter of 1997, one of the executive officers of Patriot
REIT was granted nonqualified options to purchase an aggregate of 560,009
shares of common stock at an exercise price of $24.12 (based on the market
price of Old Patriot REIT's Common Stock on the date of the grant after giving
effect to the March 1997 and July 1997 stock splits and the Cal Jockey
Merger). These options to purchase common stock vest annually over a period of
four years.
During the second quarter of 1997, the Compensation Committee of Old Patriot
REIT's Board of Directors awarded a two-tier option program for Patriot REIT's
chief executive officer which is intended to be his sole equity award for the
next five years. The tier one award is a ten-year option to purchase 1,350,022
shares of common stock with an exercise price equal to $22.375 per share, the
fair market value of Old Patriot REIT's Common Stock on the date of the grant
(after giving effect to the July 1997 stock split and the Cal Jockey Merger).
This option is not exercisable until April 1, 2002. The tier two award is a
ten-year premium priced option to purchase an aggregate of 1,250,020 shares of
common stock. This grant has five equal tranches of 250,004 shares each with
an increasing exercise price ranging from $24.60 to $36.03. This tier two
option is not exercisable until April 1, 2002.
Additionally, during the second quarter of 1997, another executive officer
of Old Patriot REIT was granted nonqualified options to purchase an aggregate
of 100,001 shares of common stock at an exercise price of $22.62 (based on the
market price of Old Patriot REIT's common stock on the date of the grant after
giving effect to the July 1997 stock split and the Cal Jockey Merger). These
options to purchase common stock vest annually over a period of five years.
S-141
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. NONCASH INVESTING AND FINANCING ACTIVITIES:
Patriot REIT
In connection with the acquisition of hotel properties, the following assets
and liabilities were assumed:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Receivables from selling entities......................... $ (1,548) $ 329
Inventory................................................. (243) 187
Prepaid expenses and other assets......................... -- 446
Deferred expenses......................................... -- 685
Mortgage debt............................................. 34,244 --
Accounts payable and accrued liabilities.................. (2,072) 4,139
Due to PAH RSI Lessee for working capital liabilities
assumed.................................................. 1,235 --
Due to PAH RSI Lessee for land development costs.......... $ 1,987 $ --
Land sale proceeds due from PAH RSI Lessee................ $ (2,200) $ --
Reclassification of prepaid acquisition costs to property
costs.................................................... $ 17,371 $ --
Mortgage note receivable from Lessee affiliate............ $ 20,500 $ --
Capital lease obligation acquired......................... $ 430 $ --
Issuance of common stock in connection with the
acquisition of hotel properties.......................... $169,713 $ --
Issuance of options in connection with the acquisition of
hotel properties......................................... $ 3,266 $ --
Issuance of OP Units in connection with the acquisition of
hotel properties......................................... $166,024 $13,303
Excess purchase consideration over estimated fair market
value of assets acquired in the Cal Jockey Merger........ $(87,070) $ --
Subscription notes issued for common stock and OP Units
issued in connection with the Cal Jockey Merger.......... $ 59,652 $ --
</TABLE>
In connection with Patriot REIT's investment in an unconsolidated subsidiary
in 1996, Patriot REIT issued a promissory note payable to the unconsolidated
subsidiary in the amount of $6,217 which has been included in due to
unconsolidated subsidiaries in the accompanying financial statements.
S-142
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Patriot Operating Company
In connection with the Cal Jockey Merger, the acquisition of management
companies and the leasing of hotel properties, the following assets and
liabilities were assumed:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Receivables from selling entities................................ $(10,255)
Inventories...................................................... (1,425)
Prepaid expenses and other assets................................ (1,754)
Other assets..................................................... (532)
Accounts payable and accrued liabilities......................... 12,478
Deferred tax liability........................................... 4,846
Due to selling entities.......................................... $ 1,723
Due to Patriot REIT.............................................. $ 2,636
Excess purchase consideration over estimated fair market value of
assets acquired................................................. $(23,071)
Acquisition of furniture and fixtures............................ $(12,612)
Acquisition of trade names....................................... $ (2,500)
Acquisition of management contracts.............................. $(22,452)
Subscription notes receivable issued in connection with the Cal
Jockey Merger................................................... $(59,652)
Issuance of OP Units in connection with the acquisition of
management companies, furniture and fixtures, and the leasing of
hotel properties................................................ $ 39,376
Issuance of common stock in connection with the Cal Jockey Merger
and the acquisition of furniture and fixtures of hotel
properties...................................................... $ 72,516
Par value common stock in connection with the Cal Jockey Merger.. $ 680
</TABLE>
12. COMMITMENTS AND CONTINGENCIES:
Proposed Acquisitions
Wyndham Hotel Corporation and Other Assets. On April 14, 1997, Old Patriot
REIT entered into a merger agreement with Wyndham Hotel Corporation
("Wyndham") which was later ratified by Patriot REIT and Patriot Operating
Company, (as subsequently amended (see Note 14), the "Wyndham Merger
Agreement") through which Wyndham will merge with and into Patriot REIT (the
"Wyndham Merger"), with Patriot REIT being the surviving company.
Concurrently, Old Patriot REIT and CF Securities, L.P. ("CF Securities"), the
principal stockholder of Wyndham, entered into a stock purchase agreement (the
"Stock Purchase Agreement"). The Wyndham Merger Agreement generally provides
for the conversion of each outstanding share of common stock, par value $0.01
per share, of Wyndham (the "Wyndham Common Stock"), other than shares as to
which the holder thereof has elected to receive cash (subject to proration),
into the right to receive 1.372 Paired Shares. In the event the average
closing price of a Paired Share over the 20 trading days immediately preceding
the fifth business day prior to the special meeting of the stockholders of
Wyndham (the "Patriot Average Closing Price") is less than $21.86 but greater
than or equal to $20.87, each such share will be converted into the right to
receive the number of Paired Shares equal to $30.00 divided by the Patriot
Average Closing Price. In the event that the Patriot Average Closing Price is
less than $20.87, each such share will be converted into the right to receive
1.438 Paired shares (the applicable conversion ratio being referred to as the
"Wyndham Exchange Ratio"), provided, however, that in such circumstances
Wyndham has the right, waivable by it, to terminate the Wyndham Merger
Agreement. The Wyndham Merger Agreement also provides that, in lieu of
receiving Paired Shares in the Wyndham Merger, stockholders of Wyndham may
elect (a "Cash Election") to receive cash ("Cash
S-143
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Consideration") for all or any portion of their shares of Wyndham Common Stock
in an amount per share equal to the Wyndham Exchange Ratio multiplied by the
average closing price of a Paired Share over the five trading days immediately
preceding the closing of the Wyndham Merger, subject to an aggregate
availability of $100,000 of cash for all Cash Elections (including a Cash
Election by CF Securities pursuant to the Stock Purchase Agreement). See Note
14 for discussion of amendments made to the Merger Agreement.
At November 3, 1997, Wyndham's portfolio of owned, leased or managed hotels
consisted of 93 hotels operated by Wyndham, as well as 8 franchised hotels,
which in the aggregate contained 24,083 rooms. Wyndham's portfolio includes 84
upscale hotel properties and 17 midscale properties operating under the
ClubHouse brand. Pursuant to the Wyndham Merger Agreement, Wyndham will merge
with and into Patriot REIT and the companies will continue their operations
within the paired share structure. Following the Wyndham Merger, the 36 hotels
currently owned or leased by Wyndham will be leased or subleased by Patriot
REIT to Patriot Operating Company, whose name will be changed to Wyndham
International in connection with the Wyndham Merger. In addition, the leases
for two hotels currently leased by Patriot REIT to Crow Hotel Lessee, Inc.
will be terminated and re-leased to Wyndham International.
In connection with the Wyndham Merger, the Patriot REIT Partnership has also
entered into an Omnibus Purchase and Sale Agreement, dated as of April 14,
1997 (the "Omnibus Purchase and Sale Agreement"), and 11 individual purchase
and sale agreements, with partnerships (the "Crow Family Entities") owned by
certain members of the Trammell Crow family, certain members of Wyndham's
senior management and others, providing for the Patriot REIT Partnership's
acquisition of 11 full-service Wyndham-brand hotels with 3,072 guest rooms
(the "Crow Assets") for an aggregate purchase price of approximately $331,664
in cash plus up to approximately $14,000 in additional cash consideration if
two of the hotels meet certain cash flow targets (the "Crow Assets
Acquisition"). With the exception of one hotel, the Crow Assets Acquisition is
expected to be consummated concurrently with the closing of the Wyndham
Merger. See Note 14 for discussion of further agreements entered into
regarding the Crow Assets Acquisition.
The Wyndham Merger and the Crow Assets Acquisition, are subject to various
closing conditions including approval of the Wyndham Merger by the
stockholders of Patriot REIT, Patriot Operating Company and Wyndham. The
Patriot Companies have mailed to their stockholders the proxy materials
relating to the approval of the merger of Wyndham with and into Patriot REIT.
The stockholder meetings of Wyndham, Patriot REIT and Patriot Operating
Company to approve the Wyndham Merger have been scheduled for December 12,
1997. The record date for the stockholder meetings is November 12, 1997. In
connection with the scheduling of the stockholder meetings, the Patriot
Companies and Wyndham amended their merger agreement to, among other things,
extend the date after which any party may terminate the merger agreement from
December 7, 1997 to December 16, 1997. See Note 14 for discussion of
postponement of the stockholder meeting and other related events.
In connection with its merger with Patriot REIT, Wyndham has commenced a
fixed spread cash tender offer for all of $100,000 of its outstanding 10 1/2%
Senior Subordinated Notes due 2006 (the "Notes"). The purchase price for Notes
validly tendered and accepted for purchase will be an amount based on a yield
to the first redemption date equal to a 75 basis point spread over the yield
of the 6 1/2% U.S. Treasury Note due May 31, 2001 as of 3:00 p.m., EST, on the
second business day immediately preceding the expiration date of the tender
offer, less a consent payment of $20.00 per $1 principal amount. The tender
offer is scheduled to expire at Midnight, EST, on Friday, December 12, 1997,
unless extended. In conjunction with the tender offer, Wyndham is also
soliciting consents from the holder of the Notes to effect certain amendments
to the indenture under which the Notes were issued. See Note 14 for a
discussion of recent events regarding the tender offer.
S-144
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Proposed Acquisitions
WHG Casinos & Resorts, Inc. On September 30, 1997, Patriot REIT, Patriot
Operating Company and WHG Casinos & Resorts Inc. ("WHG") entered into an
Agreement and Plan of Merger (the "WHG Merger Agreement") providing for the
merger of a newly formed subsidiary of Patriot Operating Company with and into
WHG with WHG being the surviving corporation (the "WHG Merger"). As a result
of the WHG Merger, Patriot Operating Company will acquire the 570-room Condado
Plaza Hotel & Casino, a 50% interest in the 389-room El San Juan Hotel &
Casino and a 23.3% interest in the 751-room El Conquistador Resort & Country
Club (the "El Conquistador"), all of which are located in Puerto Rico, as well
as a 62% interest in Williams Hospitality Group, Inc., the management company
for the three hotels and the Las Casitas Village at the El Conquistador. Under
the terms of the WHG Merger Agreement, each share of WHG common stock
generally will be converted into the right to receive 0.784 paired shares of
Patriot REIT and Patriot Operating Company common stock, subject to certain
adjustments related to the timing of the closing of this transaction and the
average closing price of a paired share over the ten trading days immediately
preceding the third business day prior to the WHG stockholders' meeting at
which approval for the WHG Merger is sought. In addition, each issued and
outstanding share of WHG Series B Convertible Preferred Stock will be
converted into the right to receive that number of paired shares that the
holder of such share of WHG Series B Convertible Preferred Stock would have
the right to receive assuming conversion of such share, together with any
accrued and unpaid dividends thereon, into shares of WHG common stock
immediately prior to the effective time of the WHG Merger.
Buena Vista Palace Hotel. In August 1997, Patriot Operating Company
purchased a participating loan from National Resort Ventures, L.P., related to
the 1,014-room Buena Vista Palace Hotel in Orlando, Florida for approximately
$23,750 in cash (see Note 3). The Buena Vista Palace Hotel is owned by a joint
venture between Equitable Life Insurance Company, which owns a 55% interest,
and Hotel Venture Partners, Ltd., which owns a 45% interest. In November 1997,
Patriot REIT agreed to acquire a 95% equity interest in the Buena Vista Palace
Hotel for approximately $97,250 and the assumption of an existing first
leasehold mortgage with a current balance of approximately $50,700. As part of
the agreement, Patriot REIT also was granted an option to acquire the
remaining 5% equity interest in the hotel. The acquisition is subject to a
number of conditions including completion of the Patriot Companies' due
diligence. The amount invested as of September 30, 1997 is reflected in
deferred acquisition costs.
Development Fees
The four resort properties which are leased to PAH RSI Lessee are managed by
Resorts Services, Inc., an Arizona corporation. In connection with the
acquisition of the resort properties, Patriot REIT agreed to pay certain
executive officers and employees a development fee equal to 3% of the total
development cost, as defined, of certain new resort construction. In
connection with the Cal Jockey Merger, the parties have agreed to evaluate the
existing agreement and may modify existing terms.
Contingencies
Except as described below, the Patriot Companies are currently not subject
to any material legal proceedings or claims nor, to management's knowledge,
are any material legal proceedings or claims currently threatened.
On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et. al.,
was filed in the Delaware Court of Chancery in and for New Castle County (the
"Wyndham Stockholders' Litigation") purportedly as a class action on behalf of
Wyndham stockholders, against Wyndham, Old Patriot REIT and the members of the
Board
S-145
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
of Directors of Wyndham. The complaint alleges that the Wyndham Board of
Directors breached its fiduciary duties owned to Wyndham's public stockholders
in connection with the Board of Directors' approval of the Wyndham Merger. In
particular, the complaint alleges that the Wyndham Merger was negotiated at
the expense of Wyndham's public stockholders, and that the Wyndham Board of
Directors permitted Old Patriot REIT to negotiate on more favorable terms the
Crow Assets Acquisition with members of the Trammell Crow family. Old Patriot
REIT is alleged to have knowingly aided and abetted the alleged breach of
fiduciary duties. The complaint seeks to enjoin, preliminarily and
permanently, consummation of the Wyndham Merger and the Crow Assets
Acquisition under the terms presently proposed and also seeks unspecified
damages. The Patriot Companies deny the allegations in the complaint. See Note
14.
S-146
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. PRO FORMA FINANCIAL INFORMATION:
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue:
Participating lease revenue.................... $ 91,628 $ 85,221
Hotel revenue.................................. 200,759 179,239
Racecourse facility and land lease revenue..... 33,657 40,379
Management fee and service fee income.......... 12,354 9,770
Interest and other income...................... 13,956 9,025
----------- -----------
Total revenue................................ 352,354 323,634
----------- -----------
Expenses:
Departmental costs--hotel operations........... 73,217 69,370
Racecourse facility operations................. 26,868 31,026
Direct operating costs of management company
and service department........................ 5,465 4,522
Ground lease expense........................... 5,535 4,601
General and administrative..................... 35,406 30,472
Repair and maintenance......................... 9,121 8,770
Utilities...................................... 10,328 10,077
Interest expense............................... 42,889 42,448
Real estate and personal property taxes and
casualty insurance............................ 16,493 15,803
Marketing...................................... 20,872 18,888
Management fees................................ 2,756 2,322
Depreciation and amortization.................. 48,356 45,886
----------- -----------
Total expenses............................... 297,306 284,185
----------- -----------
Income before equity in earnings of
unconsolidated subsidiaries, income tax
provision and minority interests................ 55,048 39,449
Equity in earnings of unconsolidated
subsidiaries ................................. 4,488 5,650
----------- -----------
Income before income tax provision and minority
interests....................................... 59,536 45,099
Income tax provision........................... (775) (748)
----------- -----------
Income before minority interests................. 58,761 44,351
Minority interest in the Patriot Partnerships.. (9,361) (7,049)
Minority interest in other consolidated
subsidiaries.................................. (641) (200)
----------- -----------
Net income applicable to common shareholders..... $ 48,759 $ 37,102
=========== ===========
Net income per common Paired Share (1)........... $ 0.71 $ 0.54
=========== ===========
Weighted average number of common Paired Shares
and common share equivalents outstanding (1).... 68,864 68,199
=========== ===========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 Paired Shares issued in the Cal Jockey Merger, and
after restatement to reflect the impact of the 1.927-for-1 stock split
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997, as applicable.
S-147
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue:
Participating lease revenue..................... $ 156,204 $ 144,350
Racecourse facility and land lease revenue...... 3,504 3,696
Interest and other income....................... 11,917 6,771
----------- -----------
Total revenue................................. 171,625 154,817
----------- -----------
Expenses:
Real estate and personal property taxes and
casualty insurance............................. 16,203 15,485
Ground lease expense............................ 5,535 4,601
General and administrative...................... 6,937 5,953
Interest expense................................ 44,645 44,198
Depreciation and amortization................... 42,907 40,437
----------- -----------
Total expenses................................ 116,227 110,674
----------- -----------
Income before equity in earnings of unconsolidated
subsidiaries, income tax provision and minority
interest......................................... 55,398 44,143
Equity in earnings of unconsolidated
subsidiaries .................................. 4,488 5,650
----------- -----------
Income before income tax provision and minority
interest......................................... 59,886 49,793
Income tax provision............................ (125) (110)
----------- -----------
Income before minority interests.................. 59,761 49,683
Minority interest in Patriot REIT Partnership... (9,321) (7,789)
Minority interest in other consolidated
subsidiaries................................... (1,869) (1,305)
----------- -----------
Net income applicable to common shareholders...... $ 48,571 $ 40,589
=========== ===========
Net income per common share (1)................... $ 0.71 $ 0.60
=========== ===========
Weighted average number of common shares and
common share equivalents outstanding (1)......... 68,864 68,199
=========== ===========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 Paired Shares issued in the Cal Jockey Merger, and
after restatement to reflect the impact of the 1.927-for-1 stock split
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997, as applicable.
S-148
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1997 1996
----------- -----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
Revenue:
Room revenue................................... $ 135,786 $ 121,318
Other hotel revenue............................ 64,973 57,921
Racecourse facility revenue.................... 33,399 40,129
Management fee and service fee income.......... 12,354 9,770
Interest and other income...................... 3,923 4,118
----------- -----------
Total revenue................................ 250,435 233,256
----------- -----------
Expenses:
Departmental costs--hotel operations........... 73,217 69,370
Racecourse facility operations................. 30,114 34,472
Direct operating costs of management company
and service department........................ 5,465 4,522
Ground lease expense........................... -
General and administrative..................... 28,493 24,523
Repair and maintenance......................... 9,121 8,770
Utilities...................................... 10,328 10,077
Marketing...................................... 20,872 18,888
Management fees................................ 2,756 2,322
Real estate and personal property taxes and
casualty insurance............................ 290 318
Interest expense............................... 104 110
Depreciation and amortization.................. 5,449 5,449
Participating lease payments................... 64,576 59,129
----------- -----------
Total expenses............................... 250,785 237,950
----------- -----------
Income (loss) before income tax provision and
minority interests.............................. (350) (4,694)
Income tax (provision) benefit................. (650) (638)
----------- -----------
Income (loss) before minority interests.......... (1,000) (5,332)
Minority interest in Patriot Operating Company
Partnership................................... (40) 740
Minority interest in other consolidated
subsidiaries.................................. 1,228 1,105
----------- -----------
Net income (loss) applicable to common
shareholders.................................... $ 188 $ (3,487)
=========== ===========
Net income (loss) per common share (1)........... $ 0.00 $ (0.05)
=========== ===========
Weighted average number of common shares and
common share equivalents outstanding (1)........ 68,864 68,199
=========== ===========
</TABLE>
- --------
(1) After restatement to reflect the impact of the 2-for-1 stock split
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997, after conversion of each Patriot
share into 0.51895 Paired Shares issued in the Cal Jockey Merger, and
after restatement to reflect the impact of the 1.927-for-1 stock split
effected in the form of a stock dividend distributed on July 25, 1997 to
shareholders of record on July 15, 1997, as applicable.
S-149
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. SUBSEQUENT EVENTS:
Acquisition of Properties
In October 1997, Patriot REIT, through certain of its subsidiaries, acquired
The Buttes, a 353-room resort hotel in Tempe, Arizona for approximately
$63,600 and acquired three additional hotels from entities affiliated with
Gencom and CHCI for an aggregate purchase price of approximately $96,225.
These purchases were financed with approximately $68,819 of cash drawn on the
Revolving Credit Facility and by issuing 326,348 paired OP Units in the
Patriot Partnerships in a private placement. The three hotels acquired from
affiliates of Gencom and CHCI are encumbered by mortgage loans, in the
aggregate amount of approximately $83,173 including accrued interest, that
Patriot REIT made in connection with the PaineWebber Mortgage Financing (see
Notes 6 and 8). Patriot REIT has leased these hotels to Patriot Operating
Company and Patriot Operating Company subsidiaries will manage the hotels.
Acquisition of PAH RSI Lessee
In October 1997, Patriot Operating Company, through certain of its
subsidiaries, acquired the members' interest of PAH RSI Lessee for
approximately $143. PAH RSI Lessee leased eight of Patriot REIT's hotels. As a
result of the acquisition, Patriot Operating Company holds these leasehold
interests.
Cash Settled Forward Sale Transaction
On November 7, 1997, Patriot REIT entered into two forward sale transactions
with The Chase Manhattan Bank in the aggregate principal amount of $275,000.
The terms of the transactions provide that on June 2, 1998, either Chase will
be obligated to pay Patriot REIT or Patriot REIT will be obligated to pay
Chase a cash settlement amount based on the then current yield on 10-year U.S.
Treasury Notes. The forward sale transactions cover principal amounts of
$175,000 with a forward yield of 6.0% and $100,000 with a forward yield of
5.995%. If the index price of the securities on June 1, 1998 is greater than
the "Forward Price" (which is to be calculated based on the forward yield rate
and the economic variables applicable to 10-year U.S. Treasury Notes), Patriot
REIT will be obligated to pay Chase a cash settlement amount based on the
spread between the index price and the Forward Price times the principal
amount. If the index price is less than the Forward Price, Chase will be
obligated to pay Patriot REIT a cash settlement amount based on the spread
between the index price and the Forward Price times the principal amount.
Private Placement of Securities
On November 13, 1997, pursuant to a letter agreement dated September 30,
1997, the Patriot Companies sold 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement") for a purchase price per Paired Share of
$27.6875, or aggregate consideration of $27,688. In addition, pursuant to a
letter agreement dated September 30, 1997, the Patriot Companies sold
1,000,000 Paired Shares to LaSalle Advisors Limited Partnership ("LaSalle"),
as agent for certain clients of LaSalle (the "LaSalle Direct Placement"), at a
purchase price per Paired Share of $27.625, or aggregate consideration of
$27,625.
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan
Stanley Call"). The exercise price on the Morgan Stanley Call was $25.875 per
pair of OP Units. The Morgan Stanley Call was funded with the proceeds of the
PaineWebber Direct Placement and the LaSalle Direct Placement.
S-150
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Wyndham Merger and Crow Assets Acquisition
Subsequent to the mailing of the proxy material to the Patriot Companies'
stockholders, Patriot REIT and Patriot Operating Company entered into the
agreement and plan of merger with Interstate Hotels Company ("IHC") discussed
below. In order for the stockholders to have additional time to receive and
review the revised proxy materials which contain information regarding the
agreement with IHC, the stockholder meetings of Wyndham, Patriot REIT and
Patriot Operating Company to approve the Wyndham Merger have been rescheduled
to December 30, 1997. In connection with the rescheduling of the stockholder
meetings, the Patriot Companies and Wyndham amended the Wyndham Merger
Agreement to, among other things, extend the date after which any party may
terminate the Wyndham Merger Agreement from December 16, 1997 to March 31,
1998.
The Wyndham Merger Agreement, as amended, provides (among other things) that
in the event the Wyndham Merger is not consummated on or prior to December 31,
1997, under certain circumstances, the Exchange Ratio will be subject to
adjustment and, in the event the Wyndham Merger is not consummated on or prior
to January 5, 1998, the Wyndham stockholders will under certain circumstances
be entitled to receive additional consideration. In addition, if any dividend
is declared on the Patriot REIT Common Stock or the Patriot Operating Company
Common Stock, the record date for which is on or after November 26, 1997 but
prior to the Wyndham Merger, Wyndham stockholders will receive additional
consideration in the Wyndham Merger in an amount that will result in such
stockholders receiving the economic benefit of the dividend as if they had
been holders of Paired Shares on the dividend record date. In addition,
Patriot REIT, Patriot Operating Company and Wyndham agreed to change the
amount per share payable upon a Cash Election to a fixed amount so that
stockholders of Wyndham who make a Cash Election will be entitled to receive
Cash Consideration of $42.80 per share of Wyndham Common Stock. The parties to
the Stock Purchase Agreement have also confirmed that the changes in the Cash
Consideration resulting from the amendment of the Merger Agreement will have a
corresponding effect under the Stock Purchase Agreement.
In connection with the amendment of the Wyndham Merger Agreement, Patriot
REIT and the Crow Family Entities reached an agreement in principle to
consummate the closing of the purchase of up to ten of the hotels in the Crow
Assets Acquisition on or about December 16, 1997 and to waive any conditions
to the closing of the purchase of the hotels that the Wyndham Merger be
consummated concurrently with consummation of the Crow Assets Acquisition. The
parties also agreed that in the event that the Wyndham Merger does not close
on or before March 31, 1998, in certain circumstances the Patriot REIT
Partnership will be required to pay additional consideration for the purchased
hotels to the Crow Family Entities based on budgeted net operating income of
the hotels for 1998 capitalized at an 8% rate. Such additional consideration,
if payable, will be payable 60% in Paired Shares or OP Units of the Patriot
Partnerships and 40% in cash.
As a result of the rescheduling of the stockholder meetings, the expiration
date of Wyndham's tender offer and consent solicitation relating to its senior
subordinated notes has been extended so that the tender offer will now expire
at midnight on January 2, 1998. In addition, with respect to the consent
solicitation, the date by which consents must be received in order for holders
of Wyndham senior subordinated notes to receive the consent payment had
originally been November 28, 1997 and has been extended until December 11,
1997.
Wyndham Stockholders' Litigation Settlement Arrangement
In November 1997 an agreement in principle was reached to settle the Wyndham
Stockholders' Litigation (and such agreement was subsequently amended in
December 1997). The settlement arrangement among other
S-151
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
things, would require Wyndham to provide certain additional information
regarding the Wyndham Merger to its stockholders, increase the limitation on
certain expenses payable to Wyndham in connection with the Wyndham Merger, and
establish certain amounts payable to Wyndham in the event the Wyndham Merger
is not consummated on or before December 31, 1997. The agreement is subject to
approval of the Boards of Directors of both Wyndham and Patriot REIT,
execution of definitive settlement documents and obtaining court approval.
Proposed Patriot/IHC Merger
Patriot REIT, Patriot Operating Company and IHC have entered into an
Agreement and Plan of Merger dated December 2, 1997 (the "Patriot/IHC Merger
Agreement") that provides for the merger of IHC with and into Patriot REIT
with Patriot REIT being the surviving corporation (the "Patriot/IHC Merger").
If the Patriot/IHC Merger is consummated, approximately 40% of the total
issued and outstanding shares of common stock, par value $0.01 per share, of
IHC (the "IHC Common Stock") will be converted into the right to receive
$37.50 in cash and the remaining approximately 60% of IHC Common Stock will be
converted into the right to receive Paired Shares having a value of $37.50
pursuant to an exchange ratio (the "Patriot/IHC Exchange Ratio") based on an
average closing price of the Paired Shares over a specified period prior to
the meeting of stockholders of IHC relating to the Patriot/IHC Merger (the
"Patriot/IHC Average Closing Price"). The Patriot/IHC Exchange Ratio may be
adjusted under certain circumstances depending on the Patriot/IHC Average
Closing Price.
As a result of the Patriot/IHC Merger, Patriot REIT will acquire all of the
assets and liabilities of IHC, including IHC's portfolio of 222 owned, leased
or managed hotels located in the United States, Canada, the Caribbean and
Russia. Of IHC's portfolio, 40 hotels aggregating 11,580 rooms are owned or
controlled by IHC, 90 hotels aggregating approximately 10,354 rooms are leased
and 92 hotels representing approximately 23,183 rooms are managed or subject
to service agreements. IHC operates its hotels under a variety of brand names,
including Marriott(R), Embassy Suites(R), Hilton(TM), Holiday Inn(R),
Radisson(TM), Westin(R), Sheraton(TM), Doubletree(TM), Residence Inn(TM),
Hampton Inn(R), Comfort Inn(TM), Homewood Suites(TM) and Colony(R). As a
result of the Patriot/IHC Merger, Patriot REIT will assume or refinance all of
IHC's existing indebtedness, which totaled approximately $790,000 as of
December 2, 1997. The Patriot/IHC Merger is subject to certain conditions,
including approval of the Patriot/IHC Merger Agreement by the stockholders of
Patriot REIT, Patriot Operating Company and IHC.
Negotiations to Modify Revolving Credit Facility and Term Loan Commitment
On November 25, 1997, Patriot REIT, PaineWebber Real Estate and Chase
entered into a new commitment letter providing for (i) an increase of $200,000
in availability under the Revolving Credit Facility for aggregate availability
of $900,000 on substantially the same terms, and (ii) an unsecured term loan
in the aggregate principal amount of $350,000 (the "New Term Loan"). The
interest rate on the New Term Loan is expected to be substantially the same
rate as incurred under the Revolving Credit Facility.
S-152
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 11,517 $ 14,819
Cash, restricted................................... 865 936
Accounts receivable, less allowance of $941 at
December 31, 1996 and $2,063
at September 30, 1997............................. 13,330 15,682
Due from affiliates................................ 12,686 16,484
Inventories........................................ 1,430 1,887
Deferred income taxes.............................. 1,539 1,975
Other.............................................. 1,412 6,894
-------- --------
Total current assets............................. 42,779 58,677
Investment in hotel partnerships.................... 1,125 4,092
Notes and other receivables from affiliates......... 7,685 8,316
Notes receivable.................................... 6,307 1,931
Property and equipment, net......................... 134,176 290,391
Management contract costs, net...................... 7,766 10,119
Security deposits................................... 15,288 24,168
Deferred income taxes............................... 14,148 14,372
Other............................................... 13,688 17,376
Goodwill............................................ -- 20,857
-------- --------
Total assets..................................... $242,962 $450,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.............. $ 23,556 $ 45,756
Deposits........................................... 959 1,652
Deposits from affiliates........................... 344 344
Current portion of long-term debt and capital
lease obligations................................. 510 1,320
-------- --------
Total current liabilities........................ 25,369 49,072
-------- --------
Borrowings under revolving credit facility.......... -- 72,000
Long-term debt and capital lease obligations........ 129,944 155,666
Deferred income taxes............................... -- 20,970
Deferred gain....................................... 12,065 11,511
-------- --------
142,009 260,147
-------- --------
Minority interest................................... -- 2,828
-------- --------
Stockholders' equity:
Common stock....................................... 200 216
Additional paid-in capital......................... 84,342 133,137
Retained earnings.................................. 11,714 22,668
Receivables from affiliates........................ (1,223) (1,229)
Notes receivable from stockholders................. (19,449) (17,138)
Unrealized gain on securities available for sale... -- 790
Foreign currency translation adjustments........... -- (192)
-------- --------
Total stockholders' equity......................... 75,584 138,252
-------- --------
Total liabilities and stockholders' equity....... $242,962 $450,299
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-153
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- -------------------
1996 1997 1996 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues......................... $30,388 $45,310 $ 71,302 $ 128,670
Management fees........................ 1,953 2,472 6,434 6,751
Management fees--affiliates............ 4,015 5,301 10,112 13,816
Service fees........................... 426 766 1,111 1,973
Service fees--affiliates............... 763 726 1,850 1,817
Reimbursements......................... 1,503 1,761 4,636 4,934
Reimbursements--affiliates............. 2,386 2,484 6,176 6,495
Other.................................. (19) 95 320 800
------- ------- -------- ---------
Total revenues....................... 41,415 58,915 101,941 165,256
------- ------- -------- ---------
Operating costs and expenses:
Hotel expenses......................... 23,923 34,091 52,227 96,275
Selling, general and administrative
expenses.............................. 4,373 5,729 12,877 16,335
Equity participation compensation...... -- -- 2,919 --
Reimbursable expenses.................. 1,503 1,761 4,636 4,934
Reimbursable expenses--affiliates...... 2,386 2,484 6,176 6,495
Depreciation and amortization.......... 2,151 3,581 5,609 8,789
Merger expenses........................ -- 913 -- 3,632
------- ------- -------- ---------
Total operating costs and expenses... 34,336 48,559 84,444 136,460
------- ------- -------- ---------
Operating income........................ 7,079 10,356 17,497 28,796
Interest income......................... 539 503 982 1,371
Interest income--affiliates............. 180 184 536 688
Interest expense........................ (3,407) (4,664) (8,462) (11,788)
Equity in earnings of hotel
partnerships........................... -- 120 870 120
Amortization of deferred gain........... 185 185 320 554
------- ------- -------- ---------
Income before minority interests, income
taxes and extraordinary item........... 4,576 6,684 11,743 19,741
Income attributable to minority
interests.............................. -- -- (571) --
------- ------- -------- ---------
Income before income taxes and
extraordinary item..................... 4,576 6,684 11,172 19,741
Income tax (provision) benefits......... (1,807) (3,008) 10,388 (9,240)
------- ------- -------- ---------
Income before extraordinary item........ 2,769 3,676 21,560 10,501
Extraordinary item (less applicable
income tax benefits of $270 for 1996
and $195 for 1997, respectively)....... -- (298) (1,131) (298)
------- ------- -------- ---------
Net income.............................. $ 2,769 $ 3,378 $ 20,429 $ 10,203
======= ======= ======== =========
Earnings per share:
Income before extraordinary item--
primary and fully diluted............. $ .14 $ .17 $ 1.08 $ .52
Extraordinary item..................... -- (.01) (.06) (.02)
------- ------- -------- ---------
Net income--primary and fully diluted.. $ .14 $ .16 $ 1.02 $ .50
======= ======= ======== =========
Average number of common shares
outstanding............................ 20,018 21,097 20,018 20,382
======= ======= ======== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-154
<PAGE>
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
--------- --------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................... $ 20,429 $ 10,203
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 5,168 7,862
Current income taxes..................................... 2,569 8,916
Deferred income taxes.................................... (12,958) 129
Provision for bad debt................................... 628 1,283
Amortization of deferred debt issuance costs............. 441 927
Write-off of predecessor deferred debt issuance costs.... 1,401 493
Amortization of deferred gain............................ (312) (691)
Equity in earnings of hotel partnership.................. -- (120)
Equity participation compensation........................ 2,919 --
Minority interest........................................ 571 --
Net withdrawals from restricted cash..................... 2,196 (71)
Changes to operating assets and liabilities:
Accounts receivable...................................... (3,887) (3,424)
Net change in due to/from affiliates..................... (10,405) (3,739)
Other.................................................... (1,273) (7,345)
Accounts payable and accrued expenses.................... 10,409 471
Deposits................................................. (1,672) 362
Security deposits........................................ (13,676) (6,917)
--------- --------
Net cash provided by operating activities............... 2,548 8,339
--------- --------
Cash flows from investing activities:
Purchase of property and equipment....................... (4,964) (23,085)
Proceeds from sale of property and equipment............. 136,374 --
Investments in management contracts...................... (575) (2,724)
Advances on notes receivable............................. (11) (1,616)
Payment for purchase of hotels, net of cash acquired..... (33,470) (8,205)
Purchase of equity investment in hotel partnerships...... -- (2,848)
Acquisition of minority interest......................... (5,479) --
Increase in long-term restricted cash.................... (1,650) (140)
Collections on notes receivable.......................... 1,724 137
--------- --------
Net cash provided by (used in) investing activities..... 91,949 (38,481)
--------- --------
Cash flows from financing activities:
Partners' contributed capital............................ 4,801 --
Partners' capital distributions.......................... (29,593) --
Distribution made to withdrawing partners................ (982) --
Increase in payable to minority interest................. (218) --
Proceeds from borrowings under revolving credit
facility................................................ -- 78,750
Repayments of revolving credit facility.................. -- (6,750)
Proceeds from issuance of common stock................... 69,504 --
Proceeds from long-term borrowings and issuance of debt.. 94,383 9,675
Repayments of long-term borrowings and capital lease
obligations............................................. (197,516) (51,293)
Collections/(advances) on notes receivable from
stockholders............................................ (18,889) 3,062
--------- --------
Net cash provided by (used in) financing activities..... (78,510) 33,444
--------- --------
Increase in cash and cash equivalents..................... 15,987 3,302
Cash and cash equivalents at beginning of period.......... 4,160 11,517
--------- --------
Cash and cash equivalents at end of period................ $ 20,147 $ 14,819
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-155
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Wyndham Hotel Corporation ("WHC") was incorporated and formed in February
1996. The accompanying consolidated financial statements of WHC at December
31, 1996 and September 30, 1997 and for the period from May 24, 1996 through
September 30, 1996 and the quarter and nine months ended September 30, 1997
include the accounts of WHC, its wholly owned subsidiaries and certain equity
interests in hotel partnerships (collectively, the "Company"). Financial
statements for the period from January 1, 1996 through May 24, 1996 relating
to the period prior to the Company's initial public offerings include the
combined accounts of WHC, its majority owned entities and a 30% owned hotel
entity which was accounted for using the equity method. All significant
intercompany balances and transactions have been eliminated.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation at
September 30, 1997 have been included. Operating results for the quarter and
nine months ended September 30, 1997 are not necessarily indicative of the
operating results for the year ending December 31, 1997. These financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the annual report on Form 10-K of
the Company for the year ended December 31, 1996.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. PROPOSED MERGER WITH PATRIOT AMERICAN HOSPITALITY, INC.:
On April 14, 1997, the Company entered into a merger agreement with Patriot
American Hospitality, Inc. ("Patriot"), (as amended, the "Patriot Merger
Agreement"), pursuant to which the Company will merge with and into the
successor to Patriot ("New Patriot REIT") following Patriot's merger with and
into California Jockey Club (the "Cal Jockey Merger"), with New Patriot REIT
being the surviving company (the "Patriot Merger"). Patriot also entered into
a related stock purchase agreement with the principal stockholder of the
Company (the "Stock Purchase Agreement"), to acquire all of such stockholder's
shares of the Company's common stock (the "Stock Purchase.") The Cal Jockey
Merger was completed on July 1, 1997. As a result of the Patriot Merger and
the Stock Purchase, New Patriot REIT will acquire all of the outstanding
shares of common stock of the Company. Pursuant to the Patriot Merger
Agreement and the Stock Purchase Agreement, each outstanding share of common
stock of the Company ("Wyndham Common Stock") generally will be converted into
the right to receive 1.372 shares (the "Patriot Exchange Ratio") of common
stock of each of New Patriot REIT and Patriot American Hospitality Operating
Company ("New Patriot Operating Company"), which shares will be paired and
transferable and trade together only as a single unit (the "Paired Shares").
The Patriot Exchange Ratio is subject to adjustment in the event that the
average of the closing prices of the Paired Shares on the twenty trading days
preceding the fifth trading day prior to the Company's stockholders' meeting
called to approve the Patriot Merger (the "Average Trading Price") is less
than $21.86 per Paired Share. If the Average Trading Price is between $21.86
and $20.87 per Paired Share, the Patriot Exchange Ratio will be adjusted so
that each outstanding share of Wyndham Common Stock will be converted into the
right to receive a number of Paired Shares equal to $30.00 divided by the
Average Trading Price. If the Average Trading Price is less than $20.87 per
Paired Share, there will be no further adjustments to the Patriot Exchange
Ratio, which at that point would equate to 1.438 Paired Shares per share of
Wyndham Common Stock; however, in such circumstances, the Company has the
right, waivable by it, to terminate the Patriot Merger Agreement without
liability.
S-156
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On December 9, 1997, in connection with the Patriot/IHC Merger described
below, the Patriot Merger Agreement was further amended by Amendment No. 2
(the "Second Amendment") so that if the Effective Time of the Patriot Merger
does not occur on or prior to December 31, 1997, other than as a result of the
failure, caused by Wyndham, of certain closing conditions to be satisfied (a
"Wyndham Delay"), and the Average Trading Price is less than $27.50 but
greater than or equal to $25.50, the Patriot Exchange Ratio will be adjusted
so that each share of Wyndham Common Stock, other than shares as to which cash
consideration is to be received, will be converted into the right to receive
the number of Paired Shares equal to $37.73 divided by the Average Trading
Price. If the Effective Time of the Patriot Merger does not occur on or prior
to December 31, 1997, other than as a result of a Wyndham Delay, and the
Average Trading Price is less than $25.50, the Patriot Exchange Ratio will be
adjusted so that each share of Wyndham Common Stock, other than shares as to
which cash consideration is to be received, will be converted into the right
to receive 1.480 Paired Shares, provided, however, that in such circumstances
the Company has the right, waivable by it, to terminate the Patriot Merger
Agreement.
The Second Amendment also provides that stockholders of the Company will be
entitled to receive additional cash consideration under certain circumstances
in the event that the Patriot Merger is not consummated on or prior to January
5, 1998. In addition, the Second Amendment provides that if any dividend is
declared on the New Patriot REIT common stock or the New Patriot Operating
Company common stock the record date for which is on or after November 26,
1997 but prior to the Patriot Merger (including the dividend declared by New
Patriot REIT and payable to holders of record of New Patriot REIT Common
Stock, as of December 26, 1997), stockholders of the Company will receive
additional consideration in the Patriot Merger that will result in such
stockholders receiving the economic benefit of the dividend as if they had
been holders of Paired Shares on the dividend record date.
Under the Second Amendment, in lieu of receiving Paired Shares, the
Company's stockholders have the right to elect to receive cash in an amount
per share equal to $42.80, up to a maximum aggregate amount of $100 million.
If stockholders holding shares of Wyndham Common Stock with a value in excess
of this amount elect to receive cash, such cash will be allocated on a pro
rata basis among such stockholders in accordance with the Patriot Merger
Agreement. In connection with the Patriot Merger, New Patriot REIT will assume
the Company's existing indebtedness, which was approximately $229.0 million as
of September 30, 1997.
In connection with the execution of the Patriot Merger Agreement, Patriot
also entered into agreements with partnerships affiliated with members of the
Trammell Crow family providing for the acquisition by New Patriot REIT of up
to 11 full-service Wyndham branded hotels with 3,072 rooms, located throughout
the United States, for approximately $331.7 million in cash, plus
approximately $14 million in additional consideration if two hotels meet
certain operational targets (the "Crow Acquisition" and, collectively with the
Patriot Merger and the Stock Purchase, the "Proposed Patriot Transactions").
In connection with the execution of the Patriot/IHC Merger Agreement described
below, the parties to the agreements for the Crow Acquisition agreed in
principle that the closing of these transactions would be scheduled for
December 16, 1997. The parties further agreed in principle that if the Patriot
Merger fails to close by March 31, 1998, then additional consideration will be
required to be paid under certain circumstances.
The Patriot Merger and the Crow Acquisition are subject to various
conditions including, without limitation, the approval of the Patriot Merger
and certain of the related transactions by the stockholders of New Patriot
REIT, New Patriot Operating Company and the Company. It is currently
anticipated that the stockholder meetings to approve the Proposed Patriot
Transactions will occur in December 1997.
New Patriot REIT and New Patriot Operating Company entered into an Agreement
and Plan of Merger dated December 2, 1997 (the "Patriot/IHC Merger Agreement")
with Interstate Hotels Company ("IHC") that
S-157
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
provides for the merger of IHC with and into New Patriot REIT, with New
Patriot REIT being the surviving corporation (the "Patriot/IHC Merger"). If
the Patriot/IHC Merger is consummated, approximately 40% of the total issued
and outstanding shares of common stock, par value $.01 per share, of IHC (the
"IHC Common Stock") will be converted into the right to receive $37.50 in cash
(the "Patriot/IHC Cash Consideration") and the remaining approximately 60% of
IHC Common Stock will be converted into the right to receive Paired Shares
having a value of $37.50 pursuant to an exchange ratio (the "Patriot/IHC
Exchange Ratio") based on an average closing price of the Paired Shares over a
specified period prior to the meeting of stockholders of IHC relating to the
Patriot/IHC Merger (the "Patriot/IHC Average Closing Price"). The Patriot/IHC
Exchange Ratio may be adjusted under certain circumstances depending on the
Patriot/IHC Average Closing Price. The Patriot/IHC Merger is subject to
certain conditions, including approval of the Patriot/IHC Merger Agreement by
the stockholders of New Patriot REIT, New Patriot Operating Company and IHC.
On April 14, 1997, an action styled Kwalbrun v. James D. Carreker, et al.,
was filed in the Delaware Court of Chancery in and for New Castle County (the
"Wyndham Stockholders' Litigation"), purportedly as a class action on behalf
of the Company's stockholders, against the Company, New Patriot REIT and the
members of the Board of Directors of the Company. The complaint alleges that
the Company's Board of Directors breached its fiduciary duties owed to the
Company's public stockholders in connection with the Board of Directors'
approval of the Patriot Merger. In particular, the complaint alleges that the
Patriot Merger was negotiated at the expense of the Company's public
stockholders, and that the Company's Board of Directors permitted Patriot to
negotiate on more favorable terms the Crow Acquisition with members of the
Trammel Crow family. The complaint seeks to enjoin, preliminarily and
permanently, consummation of the Patriot Merger under the terms presently
proposed and also seeks unspecified damages. The defendants deny the
allegations in the complaint.
In November 1997 an agreement in principle was reached to settle the Wyndham
Stockholders' Litigation (and such agreement was subsequently amended in
December 1997). The settlement arrangement among other things, would require
Wyndham to provide certain additional information and an updated fairness
opinion regarding the Patriot Merger to its stockholders, increase the
limitation on certain expenses payable to the Company in connection with the
Patriot Merger, and increase certain amounts payable to the Company in the
event the Patriot Merger is not consummated on or before December 31, 1997.
The agreement is subject to approval of the Boards of Directors of both the
Company and New Patriot REIT, execution of definitive settlement documents and
obtaining court approval.
3. FEDERAL INCOME TAXES:
Since the Company's formation in 1996, federal income taxes have been
provided in accordance with Statement of Financial Accounting Standards No.
109. For the quarter and nine months ended September 30, 1996, income taxes
included the effect of recording deferred income tax benefits arising as a
result of the Company's incorporation in the amount of $13.0 million.
4. EARNINGS PER SHARE:
Earnings per share for the quarter and nine months ended September 30, 1996
and 1997 are computed based on the weighted average number of shares of common
stock outstanding. The impact of common stock equivalents to earnings per
share is immaterial.
In February 1997, the Financial Accounting Standard Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share
("EPS"). SFAS 128 requires basic EPS to be computed by dividing income
available to common stockholders by the weighted-average number of common
shares outstanding for the period and diluted EPS to reflect the potential
dilution that could occur if securities or other
S-158
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
contracts to issue common stock were exercised or converted into common stock
or resulted in the issuance of common stock that then shared in the earnings
of the entity. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997 and requires restatement of all prior
period EPS data presented. Earlier application is not permitted.
The impact of the implementation of SFAS 128 on the Company's consolidated
financial statements is expected to be immaterial. If SFAS 128 were adopted,
basic EPS and diluted EPS would have been as follows:
<TABLE>
<CAPTION>
NINE MONTHS
QUARTER ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- -------------
1996 1997 1996 1997
------ ------- ------- ------
<S> <C> <C> <C> <C>
Basic EPS:
Income before extraordinary item............ $ .14 $ .17 $ 1.08 $ .51
Net income.................................. .14 .16 1.02 .50
Diluted EPS:
Income before extraordinary item............ $ .14 $ .17 $ 1.06 $ .51
Net income.................................. .14 .16 1.00 .49
</TABLE>
5. ACQUISITIONS AND RELATED BORROWINGS:
On July 31, 1997, the Company acquired Kansas City-based ClubHouse Hotels,
Inc., ("ClubHouse") a privately held chain of 17 hotels operating in the mid-
scale segment of the lodging industry. The acquisition added 2,456 rooms, or
approximately 10% to the Company's current portfolio of hotels open or under
construction. In connection with the acquisition of ClubHouse, the Company
acquired direct or indirect ownership of 13 ClubHouse hotels, ownership of
partial interests in three additional managed ClubHouse hotels, ownership of
the ClubHouse Inns brand name and one license for a franchised ClubHouse
hotel. The terms of the merger and related transactions were reached following
arms-length negotiations among the parties involved. The total consideration
paid by the Company in connection with the merger and related transactions
included (1) the issuance of 1,599,448 shares of common stock of the Company
pursuant to the merger (with the total number of shares issuable subject to a
working capital adjustment to be made in the future), (2) the assumption of
approximately $23.5 million of debt and (3) the payment of approximately $55.6
million in cash. The cash portion of the purchase price was borrowed under the
Company's revolving credit facility with Bankers Trust Company, as agent for a
group of financial institutions.
In connection with the acquisition of ClubHouse, the Company amended the
revolving credit facility to (i) increase the aggregate amount of the credit
facility by $50 million to a total of $150.0 million, (ii) make certain
revisions to the method of calculating the borrowing base, (iii) amend certain
financial covenants, (iv) permit the Company to make certain debt and equity
investments and (v) make certain other amendments.
On September 26, 1997, the Company elected to fund a cash shortfall related
to renovation costs and assumed a 67.5% interest in a hotel partnership, as
the owner of the hotel partnership failed to fund the shortfall. The Company
contributed and converted its outstanding note receivable and accrued interest
thereon totaling $5.9 million to equity.
6. MERGER EXPENSES:
During the quarter and nine months ended September 30, 1997, the Company
incurred merger expenses totaling $913,000 and $3.6 million, respectively, in
connection with the Patriot Merger. These expenses were incurred for legal
services, investment banker fees and certain other professional fees. If the
merger is consummated, the Company will incur additional investment banker
fees of approximately $4.2 million.
S-159
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. TERMINATION OF A MANAGEMENT AGREEMENT:
On July 25, 1997, the Company agreed to the termination of its management
relationship with Homegate Hospitality Inc. ("Homegate") which operates
extended-stay hotels. The termination was effective October 31, 1997 as a
result of the pending merger of Homegate with another company in the lodging
industry and is conditioned upon the completion of such merger. The Company
will receive $12.0 million in exchange for the termination. In 1996, the
Company and Homegate entered into an agreement under which the Company would
manage up to 60 Homegate mid-price extended-stay hotels as they were purchased
or developed by Homegate prior to December 31, 1998. The Company managed 9 of
these hotels at September 30, 1997.
8. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the right to
use the Wyndham name for hotel service in the New York metropolitan area. On
January 29, 1996, a temporary restraining order was issued by the Supreme
Court of the State of New York which, pending the outcome of a trial, prevents
the Company from using the Wyndham name in the New York area. An adverse
decision in the litigation could prevent the Company from operating Wyndham
brand hotels or advertising the Wyndham name in connection with the operation
of a Wyndham brand hotel within a 50 mile radius of a hotel in Manhattan
operated under the "Wyndham" name. It is management's opinion, based on legal
counsel, that the range of losses resulting from the ultimate resolution of
the aforementioned claim cannot be determined. The cost of $1.3 million at
September 30, 1997 for defending the trademark has been capitalized and is
being amortized over 17 years, pending the ultimate resolution. An adverse
decision may result in the immediate write-off of those capitalized costs.
The Company received a Notice of Intent to make Sales and Use Tax audit
changes from the Tampa Region of the Florida Department of Revenue for the
period from July 31, 1990 through June 30, 1995. The audit assessed additional
taxes of $584,000, penalty of $224,000 and interest of $201,000 for a total
assessment of $1,009,000. The previous owners (an affiliate) have agreed to
indemnify the Company with respect to any additional sales and use tax paid by
the Company for the audit period. Management, after review and consultation
with legal counsel, believes the Company has meritorious defenses to this
matter and that any potential liability in excess of the $189,000 accrued in
the financial statements would not materially effect the Company's
consolidated financial statements.
The Company is the subject of the class action lawsuit described under Note
2 above. The Company has pending several other claims incurred in the normal
course of business which, in the opinion of management, based on the advice of
legal counsel, will not have a material effect on the consolidated financial
statements.
Pursuant to the terms of a management agreement with an affiliate-owned
hotel under construction, the Company has undertaken certain commitments to
provide furniture, fixtures and equipment for the hotel at a fixed price
totaling $6.0 million. As of September 30, 1997, the Company has satisfied
commitments totaling $4.8 million.
The Company has also guaranteed to fund up to $230,000 in working capital
per year for three years on a hotel in the event that the hotel generates
inadequate cash flow and the Company has guaranteed $875,000 of its
indebtedness. The Company has not to date been required to make any capital
contribution under the guarantee.
Pursuant to the terms of a management agreement of a hotel in which the
Company has a 30% ownership interest, the Company has committed to loan up to
$2.5 million for the renovation of the hotel property. The loan will bear an
interest rate of 10% and will be collateralized by the outstanding partnership
interest of the owners. Interest will be due monthly and principal is payable
in installments beginning January 1998 based on the operating income of the
hotel. As of September 30, 1997, the Company has made $619,000 of such
advances. The Company also guarantees $2,340,000 in indebtedness of this
hotel.
S-160
<PAGE>
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to fund up to $600,000 of working
capital per year to the extent the entity experiences operating deficits, with
a maximum required contribution of $2.3 million over the term of the guarantee
extending from 1995 to 2000. The Company has not to date been required to make
any capital contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels).
The cost of complying with the environmental regulations was not material to
the Company's consolidated statements of income for the nine months ended
September 30, 1996 and 1997. The Company is not aware of any environmental
condition on any of its properties which is likely to have a material adverse
effect on the Company's financial statements.
9. PRO FORMA FINANCIAL INFORMATION:
The pro forma condensed consolidated statements of income of the Company are
presented as if the ClubHouse Merger had occurred on January 1, 1996. These
pro forma condensed consolidated statements are presented for informational
purposes only and are not necessarily indicative of what actual results of
operations of the Company would have been assuming such transactions had been
completed as of January 1, 1996, nor do they purport to represent the results
of operations for future periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
-----------------------
1996 1997
----------- -----------
(IN THOUSANDS, EXCEPT,
PER SHARE AMOUNTS)
<S> <C> <C>
Total revenues..................................... $ 128,121 $ 186,204
Operating income................................... 25,319 34,102
Income before extraordinary item................... 23,124 21,337
Earnings before extraordinary item per common share
outstanding....................................... 1.07 .56
</TABLE>
10. CONDENSED COMBINED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES:
In connection with the issuance of the $100 million subordinated notes
("Notes"), all of the Company's direct and indirect subsidiaries, with the
exception of a number of subsidiaries (which subsidiaries are individually and
collectively inconsequential), are fully and unconditionally guaranteeing the
Company's obligations under the Notes on a joint and several basis (the
"Guarantor Subsidiaries"). Accordingly, the condensed combined financial
information set forth below summarizes financial information for all of the
Guarantor Subsidiaries on a combined basis. Separate complete financial
statements and other disclosure for the Guarantor Subsidiaries have not been
presented because management does not believe that such information is
material to investors. The condensed combined financial information of the
Guarantor Subsidiaries as of December 31, 1996 and September 30, 1997, and for
the quarter and nine months ended September 30, 1996 and 1997 are presented as
follows:
S-161
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 9,673 $ 17,725
Cash, restricted.................................. 865 469
Accounts receivable, net.......................... 22,085 40,815
Other............................................. 2,466 4,159
-------- --------
Total current assets............................ 35,089 63,168
Notes and other receivables from affiliates......... 7,685 8,316
Notes receivable.................................... 1,978 1,931
Investments in hotel partnerships................... -- 3,907
Property and equipment, net......................... 61,062 190,374
Management contract costs, net...................... 8,166 10,119
Security deposits................................... 15,105 24,041
Other............................................... 2,502 5,279
-------- --------
Total assets.................................... $131,587 $307,135
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses............. $ 18,169 $ 32,139
Deposits.......................................... 1,147 1,365
Current portion of long-term debt and capital
lease obligations................................ 510 1,070
Due to affiliates................................. 42,666 164,002
-------- --------
Total current liabilities....................... 62,492 198,576
-------- --------
Long-term debt and capital lease obligations........ 29,944 52,440
-------- --------
Minority interest................................... -- 3,369
-------- --------
Stockholder's equity:
Receivable from affiliates........................ (1,223) (1,229)
Additional paid-in capital........................ 31,071 31,071
Retained earnings................................. 9,303 22,908
-------- --------
Total stockholder's equity...................... 39,151 52,750
-------- --------
Total liabilities and stockholder's equity.... $131,587 $307,135
======== ========
</TABLE>
See note to the condensed combined financial information.
S-162
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- -------------------
1996 1997 1996 1997
------- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues............................... $33,422 $40,441 $ 82,280 $ 126,463
------- ------- -------- ---------
Operating costs and expenses........... 25,514 34,668 61,298 97,362
Depreciation and amortization.......... 1,180 2,281 3,352 5,174
------- ------- -------- ---------
Total operating costs and expenses... 26,694 36,949 64,650 102,536
------- ------- -------- ---------
Operating income....................... 6,728 3,492 17,630 23,927
Interest expense, net.................. (338) (596) (2,128) (1,079)
Equity in earnings of hotel
partnerships.......................... -- 118 870 118
------- ------- -------- ---------
Income before minority interests,
income taxes and extraordinary item... 6,390 3,014 16,372 22,966
Income (loss) attributable to minority
interests............................. -- (15) 571 (15)
------- ------- -------- ---------
Income before income taxes and
extraordinary item.................... 6,390 3,029 15,801 22,981
Income taxes........................... 2,524 1,197 3,325 9,078
------- ------- -------- ---------
Income before extraordinary item....... 3,866 1,832 12,476 13,903
Extraordinary item (less applicable
taxes)................................ -- (298) (1,028) (298)
------- ------- -------- ---------
Net income........................... $ 3,866 $ 1,534 $ 11,448 $ 13,605
======= ======= ======== =========
</TABLE>
See note to the condensed combined financial information.
S-163
<PAGE>
GUARANTOR SUBSIDIARIES
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1997
--------- --------
(UNAUDITED)
<S> <C> <C>
Net cash provided by operating activities.................. $ 3,618 $ 16,694
--------- --------
Cash flows from investing activities:
Purchase of property and equipment....................... (3,581) (9,985)
Sale of property and equipment........................... 133,778 --
Investments in management contracts...................... (575) (2,724)
Advances on notes receivable from affiliates............. (11) (619)
Advances on other notes receivable....................... -- (53)
Advances on collection on notes receivables.............. -- 117
Payment for purchase of hotels, net of cash acquired..... (2,520) --
Acquisition of minority interest......................... (5,479) --
Decrease (increase) in long-term restricted cash......... (1,296) 778
Other.................................................... 1,674 --
--------- --------
Net cash provided by (used in) investing activities.... 121,990 (12,486)
--------- --------
Cash flows from financing activities:
Partners' contributed capital............................ 26,502 --
Partners' capital distributions.......................... (42,572) --
Decrease (increase) in receivables from affiliates....... 5,327 (20,726)
Increase in payables to affiliates....................... 32,379 25,105
Decrease in payable to minority interest................. (218) --
Proceeds from long-term borrowings....................... 2,500 9,675
Repayment of long-term debt and capital lease
obligations............................................. (148,195) (10,210)
--------- --------
Net cash provided by (used in) financing activities.... (124,277) 3,844
--------- --------
Increase in cash and cash equivalents...................... 1,331 8,052
Cash and cash equivalents at beginning of period........... 3,708 9,673
--------- --------
Cash and cash equivalents at end of period................. $ 5,039 $ 17,725
========= ========
</TABLE>
NOTE TO CONDENSED COMBINED FINANCIAL INFORMATION:
(1) The foregoing condensed combined financial information includes GHALP
Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham
Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC Vinings
Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose Hall
Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC Development
Corporation, WHC Franchise Corporation, WHCMB Overland Park, Inc., WHCMB,
Toronto, Inc., WHC Columbus Corporation, Wyndham Hotels & Resorts
Management Ltd., WHC Salt Lake City Corporation, WHC Airport Corporation,
ClubHouse Hotels, Inc., CHMB, Inc., MBAH, Inc., PSMB, Inc., GHMB, Inc. and
a management subsidiary for a non-branded hotel. They all are wholly-owned
subsidiaries of the Company at September 30, 1997.
S-164
<PAGE>
11. SUBSEQUENT EVENTS:
Subsequent to September 30, 1997, the Company borrowed an additional $20.5
million under the revolving credit facility. Of the amount borrowed, $6.5
million was used to fund the purchase of the remaining interest in a hotel
property managed by ClubHouse of which the Company owned a 5% interest at
September 30, 1997 through the ClubHouse merger. The remaining balance was
used to fund renovation costs, to make security deposits on hotel properties
to be acquired and leased and to make interest payment on the Company's 10
1/2% Senior Subordinated Notes due 2006.
S-165
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Interstate Hotels Company:
We have audited the accompanying consolidated balance sheets of Interstate
Hotels Company (the Company) as of December 31, 1995 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1995 and 1996, and the consolidated results
of its operations, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
600 Grant Street Pittsburgh, Pennsylvania
February 12, 1997, except for Note 21, Note 22 and the last paragraph of Note
2, as to which the date is December 2, 1997
S-166
<PAGE>
INTERSTATE HOTELS COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 14,035 $ 32,323 $ 31,924
Accounts receivable, net................... 10,654 21,556 48,653
Stock subscription receivable, net......... -- 14,286 --
Deferred income taxes...................... -- 1,649 2,283
Prepaid expenses and other assets.......... 712 11,961 14,161
-------- -------- ----------
Total current assets..................... 25,401 81,775 97,021
Restricted cash.............................. 2,096 15,995 7,745
Property and equipment, net.................. 1,894 709,151 1,140,291
Investments in hotel real estate............. 12,884 5,605 24,518
Officers and employees notes receivable...... 1,219 4,643 5,184
Affiliates notes receivable.................. 8,718 -- --
Intangible and other assets.................. 9,189 66,592 75,494
-------- -------- ----------
Total assets............................. $ 61,401 $883,761 $1,350,253
======== ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable--trade.................... 926 12,152 14,297
Accounts payable--health trust............. 5,505 2,440 7,372
Accrued payroll and related benefits....... 3,026 15,072 19,584
Income taxes payable....................... -- -- 142
Other accrued liabilities.................. 5,546 23,926 56,005
Current portion of long-term debt.......... 363 11,767 61,059
-------- -------- ----------
Total current liabilities................ 15,366 65,357 158,459
Long-term debt............................... 35,907 396,044 714,445
Deferred income taxes........................ -- 4,081 13,878
Other liabilities............................ -- 1,213 1,213
-------- -------- ----------
Total liabilities........................ 51,273 466,695 887,995
-------- -------- ----------
Minority interests........................... 872 7,768 17,141
Commitments and contingencies................ -- -- --
-------- -------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 25,000
shares authorized; no shares outstanding.. -- -- --
Common stock, $.01 par value; 75,000 shares
authorized; 35,421 shares issued and out-
standing as of September 30, 1997......... 3 352 354
Paid-in capital............................ 26,883 407,784 411,644
Retained (deficit) earnings................ (12,737) 1,432 33,932
Unearned compensation...................... (3,263) (270) (813)
Receivable from shareholders............... (1,630) -- --
-------- -------- ----------
Total shareholders' equity............... 9,256 409,298 445,117
-------- -------- ----------
Total liabilities and shareholders' equi-
ty...................................... $ 61,401 $883,761 $1,350,253
======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-167
<PAGE>
INTERSTATE HOTELS COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------ -------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Lodging revenues:
Rooms........................ $ -- $ -- $ 89,930 $ 37,351 $ 318,132
Food and beverage............ -- -- 42,502 16,792 90,886
Other departmental........... -- -- 8,685 3,840 27,250
Management fees................ 22,285 27,022 29,304 21,872 18,915
Other management-related fees.. 14,441 17,996 19,964 13,916 14,406
------- ------- -------- -------- ---------
36,726 45,018 190,385 93,771 469,589
------- ------- -------- -------- ---------
Lodging expenses:
Rooms........................ -- -- 20,900 8,064 72,227
Food and beverage............ -- -- 31,033 12,513 68,498
Other departmental........... -- -- 3,936 1,680 11,928
Property costs............... -- -- 41,707 16,618 123,411
General and administrative..... 8,302 9,811 10,912 7,240 10,628
Payroll and related benefits... 12,420 15,469 17,529 12,564 15,711
Non-cash compensation.......... -- -- 11,896 11,896 --
Lease expense.................. -- -- 3,477 -- 54,910
Depreciation and amortization.. 3,659 4,201 14,862 7,762 28,524
------- ------- -------- -------- ---------
24,381 29,481 156,252 78,337 385,837
------- ------- -------- -------- ---------
Operating income........... 12,345 15,537 34,133 15,434 83,752
Other income (expense):
Interest, net................ 30 99 (12,421) (5,315) (29,496)
Other, net................... 14 203 (270) 329 (1,802)
------- ------- -------- -------- ---------
Income before income tax
expense................... 12,389 15,839 21,442 10,448 52,454
Income tax expense............. -- -- 15,325 11,145 19,954
------- ------- -------- -------- ---------
Income (loss) before ex-
traordinary items......... 12,389 15,839 6,117 (697) 32,500
Extraordinary loss from early
extinguishment of debt, net of
tax benefit................... -- -- 7,733 7,643 --
------- ------- -------- -------- ---------
Net income (loss).......... $12,389 $15,839 $ (1,616) $ (8,340) $ 32,500
======= ======= ======== ======== =========
Earnings per common share and
common share equivalent (Note
19)........................... $ .91
=========
Weighted average number of
common shares and common share
equivalents outstanding....... 35,638
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-168
<PAGE>
INTERSTATE HOTELS COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED RECEIVABLE
COMMON PAID-IN (DEFICIT) UNEARNED PARTNERS' FROM
STOCK CAPITAL EARNINGS COMPENSATION CAPITAL STOCKHOLDERS TOTAL
------ -------- --------- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993................... $ 57 $ 17,856 $ (269) $ -- $1,962 $(2,979) $ 16,627
Effect of
recapitalization...... (21) 21 -- -- -- -- --
Common stock of new
entities and capital
contributions......... 6 3 -- -- -- -- 9
Net decrease in
receivable from
shareholders.......... -- -- -- -- -- 776 776
Distributions paid..... -- -- (5,987) -- (4,956) -- (10,943)
Net income............. -- -- 5,517 -- 6,872 -- 12,389
---- -------- ------- ------ ------ ------- --------
Balance at December 31,
1994................... 42 17,880 (739) -- 3,878 (2,203) 18,858
Effect of
reorganization........ (42) 4,520 -- -- (4,478) -- --
Assumption of liability
by principal
shareholder........... -- 1,220 -- -- -- -- 1,220
Common stock of new
entities and capital
contributions......... 3 -- -- -- 600 -- 603
Stock options granted.. -- 3,263 -- (3,263) -- -- --
Assumption of
shareholders'
liability............. -- -- (12,995) -- -- -- (12,995)
Net decrease in
receivable from
shareholders.......... -- -- -- -- -- 573 573
Distributions paid..... -- -- (14,842) -- -- -- (14,842)
Net income............. -- -- 15,839 -- -- -- 15,839
---- -------- ------- ------ ------ ------- --------
Balance at December 31,
1995................... 3 26,883 (12,737) (3,263) -- (1,630) 9,256
Cancellation of stock
options issued in
1995.................. -- (3,263) -- 3,263 -- -- --
Issuance of stock (Note
11)................... 8 12,154 -- (379) -- -- 11,783
Unearned compensation
recognized............ -- -- -- 109 -- -- 109
Net decrease in
receivable from
shareholders.......... -- -- -- -- -- 1,630 1,630
Dividends and capital
distributions......... -- (30,000) (8,423) -- -- -- (38,423)
Contribution of IHC's
net assets for Common
Stock................. 125 (24,333) 24,208 -- -- -- --
Issuance of Common
Stock, net............ 186 357,287 -- -- -- -- 357,473
Stock subscription
receivable, net....... 6 14,280 -- -- -- -- 14,286
Issuance of Common
Stock for
acquisitions.......... 24 54,776 -- -- -- -- 54,800
Net loss............... -- -- (1,616) -- -- -- (1,616)
---- -------- ------- ------ ------ ------- --------
Balance at December 31,
1996................... 352 407,784 1,432 (270) -- -- 409,298
Unearned compensation
recognized............ -- -- -- 24 -- -- 24
Issuance of stock...... -- 567 -- (567) -- -- --
Issuance of Common
Stock................. 2 3,070 -- -- -- -- 3,072
Options exercised...... -- 223 -- -- -- -- 223
Net income............. -- -- 32,500 -- -- -- 32,500
---- -------- ------- ------ ------ ------- --------
Balance at September 30,
1997 (Unaudited)....... $354 $411,644 $33,932 $ (813) -- -- $445,117
==== ======== ======= ====== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-169
<PAGE>
INTERSTATE HOTELS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- ---------------------
1994 1995 1996 1996 1997
-------- -------- --------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)....... $ 12,389 $ 15,839 $ (1,616) $ (8,340) $ 32,500
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and amorti-
zation................. 3,659 4,201 14,862 7,762 28,524
Minority interests'
share of equity (loss)
income from investments
in hotel real estate... -- (10) 503 (106) 2,636
Non-cash compensation... -- -- 11,896 11,896 --
Deferred income taxes... -- -- 6,671 1,835 9,163
Write-off of deferred
financing fees......... -- -- 6,169 6,231 --
Other................... (53) (299) (231) (340) (537)
Cash (used in) provided
by assets and liabili-
ties:
Accounts receivable,
net.................... (2,652) (2,377) 1,280 (3,348) (27,097)
Prepaid expenses and
other assets........... (17) (257) (11,289) (3,486) (2,122)
Accounts payable........ 915 4,775 2,953 (2,566) 7,077
Income taxes payable.... -- -- -- 2,373 142
Accrued liabilities..... 1,077 3,456 10,073 2,799 36,591
-------- -------- --------- ---------- ---------
Net cash provided by
operating activities.. 15,318 25,328 41,271 14,710 86,877
-------- -------- --------- ---------- ---------
Cash flows from investing
activities:
Change in restricted
cash................... (814) (811) (13,899) (2,661) (36,035)
Acquisition of hotels,
net of cash received... -- -- (417,601) (236,673) (338,315)
Purchase of property and
equipment, net......... (607) (438) (16,253) (1,148) (60,718)
Restricted funds used to
purchase property and
equipment.............. -- -- 10,383 674 44,285
Investments in hotel
real estate............ -- (13,038) (5,605) (5,146) (18,525)
Change in notes receiv-
able, net.............. 529 (7,686) (3,424) (3,289) (541)
Other................... (2,960) (885) (3,015) 2,172 (10,641)
-------- -------- --------- ---------- ---------
Net cash used in in-
vesting activities.... (3,852) (22,858) (449,414) (246,071) (420,490)
-------- -------- --------- ---------- ---------
Cash flows from financing
activities:
Proceeds from long-term
debt................... 3,548 35,000 360,100 265,750 369,400
Repayment of long-term
debt................... (2,642) (15,265) (247,939) (241,689) (56,857)
Financing costs paid,
net.................... (33) (2,088) (14,997) (9,349) (3,925)
Minority interests,
net.................... -- 882 6,896 (1,736) 6,737
Proceeds from issuance
of Common Stock, net... -- -- 357,473 263,752 17,859
Capital contributions... 9 603 -- -- --
Repayment of funds ad-
vanced to shareholders,
net.................... 776 573 1,630 1,630 --
Repayment of notes pay-
able to shareholders... -- -- (30,000) (30,000) --
Dividends and capital
distributions paid..... (10,943) (14,842) (6,732) (6,732) --
-------- -------- --------- ---------- ---------
Net cash (used in) pro-
vided by financing ac-
tivities.............. (9,285) 4,863 426,431 241,626 333,214
-------- -------- --------- ---------- ---------
Net change in cash and
cash equivalents........ 2,181 7,333 18,288 10,265 (399)
Cash and cash equivalents
at beginning of period.. 4,521 6,702 14,035 14,035 32,323
-------- -------- --------- ---------- ---------
Cash and cash equivalents
at end of period........ $ 6,702 $ 14,035 $ 32,323 $ 24,300 $ 31,924
======== ======== ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
S-170
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Interstate Hotels Company (the Company) was formed on April 19, 1996 in
anticipation of an initial public offering of the Company's Common Stock (see
Note 3). As of December 31, 1996, the Company owned 18 hotels and had a
majority equity interest in nine other hotels (collectively, the Owned
Hotels). As a result of the transactions discussed in Notes 3 and 4, the
consolidated financial statements of the Company consist of the historical
results of Interstate Hotels Corporation and Affiliates (IHC), the Company's
predecessor, and the operations of the Owned Hotels from the respective dates
of their acquisitions. Prior thereto, the consolidated financial statements
reflect only the historical activity of IHC. The working capital and operating
results of hotels operated under long-term operating leases (the Leased
Hotels) are also included in the Company's consolidated financial statements
because the operating performance associated with such hotels is guaranteed by
the Company (see Note 9).
The Company provides management and other related services principally to
owned, managed and leased hotels through its wholly owned subsidiaries. The
Company provides these services to hotels located in 34 states, the District
of Columbia, Canada, Israel, the Caribbean, Thailand, Panama and Russia, with
the largest concentration of hotels in the states of Florida and California.
These hotels are operated under a number of franchise agreements, with the
largest franchisors being Marriott International, Inc. and Promus Hotels, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and entities more than 50% owned. All significant intercompany transactions
and balances have been eliminated in consolidation. The Company accounts for
investments in less than 50% but greater than 20% owned entities in which it
can exert significant influence under the equity method of accounting. All
other investments are accounted for under the cost method. These investments
are included in investments in hotel real estate in the consolidated balance
sheets.
Minority interests represent the proportionate share of the equity that is
owned by third parties in entities more than 50% owned by the Company. The net
income or loss of such entities is allocated to the minority interests based
on their percentage ownership throughout the year and is included in other
income (expense) in the consolidated statements of operations.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from these estimates.
Cash and Cash Equivalents:
All unrestricted, highly liquid investments purchased with a remaining
maturity of three months or less are considered to be cash equivalents.
Restricted Cash:
The long-term debt agreements discussed in Note 8 and the franchise
agreements referred to in Note 17 provide that cash from hotel operations be
restricted for the future acquisition or replacement of property and equipment
each year based on a percentage of gross hotel revenues. The requirements
range from 3% to 6%.
S-171
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Capital restricted under applicable government insurance regulations is also
included in restricted cash, and represents 20% of the annual insurance
premiums written by the Company (see Note 15).
Property and Equipment:
Property and equipment are recorded at cost, which includes the allocated
purchase price for hotel acquisitions, and are depreciated primarily on the
straight-line method over their estimated useful lives. Expenditures for
maintenance and repairs are expensed as incurred. Expenditures for major
renewals and betterments that significantly extend the useful life of existing
property and equipment are capitalized and depreciated. The cost and related
accumulated depreciation applicable to property no longer in service are
eliminated from the accounts and any gain or loss thereon is included in
operations.
The Company is currently in the process of finalizing certain purchase price
allocations for hotel acquisitions that occurred in the fourth quarter of
1996. Management anticipates that such purchase price allocations will be
finalized in the first half of 1997. Adjustments, if any, would not result in
material changes in the results of operations, but may result in the
reclassification of certain long-term assets.
Officers and Employees Notes Receivable:
Officers notes receivable consist principally of notes from two executives.
Such notes bear interest, are fully recourse to the borrowers and are forgiven
and expensed ratably, if certain conditions are met, until the notes mature in
June 2006. The Company also makes loans from time to time to other employees,
which are payable upon demand and generally do not bear interest until such
demand is made. Certain officers and employees notes receivable may be
forgiven and expensed provided certain conditions are satisfied.
Intangible and Other Assets:
Intangible and other assets consist of the amounts paid to obtain management
and lease contracts and deferred financing fees. Goodwill is also included in
intangible and other assets, and represents the excess of the purchase price
over the net assets of businesses acquired. Intangible and other assets are
amortized on the straight-line method over the life of the underlying
contracts or estimated useful lives.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected future net cash flows is
less than book value.
Deferred Income Taxes:
Deferred income taxes are recorded using the liability method. Under this
method, deferred tax assets and liabilities are provided for the differences
between the financial statement and the tax basis of assets and liabilities
using enacted tax rates in effect for the years in which the differences are
expected to reverse.
Revenue Recognition:
Management fees and other management-related fees are recognized when
earned. The Owned Hotels and Leased Hotels recognize revenue from their rooms,
food and beverage and other departments as earned on the close of each
business day. Hotels managed under short-term operating leases with certain
lessee and lessor cancellation clauses are treated as management contracts,
with the revenue earned from those leases recognized when earned.
S-172
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Reimbursable Expenses:
The Company is reimbursed for costs associated with providing insurance
services, purchasing and renovation services, MIS support, centralized
accounting, leasing, training and relocation programs to owned, managed and
leased hotels. These revenues are included in other management-related fees
and the corresponding costs are included in general and administrative and
payroll and related benefits in the consolidated statements of operations.
Insurance:
Insurance premiums are recorded as income on a pro-rata basis over the life
of the related policies, with the portion applicable to the unexpired terms of
the policies in force recorded as unearned premium reserves. Losses are
provided for reported claims, claims incurred but not reported and claims
settlement expense at each balance sheet date. Such losses are based on
management's estimate of the ultimate cost of settlement of claims. Actual
liabilities may differ from estimated amounts. Any changes in estimates are
reflected in current earnings.
Concentration of Credit Risk:
The Company maintains cash and cash equivalents with various financial
institutions in excess of the amount insured by the Federal Deposit Insurance
Corporation. Management believes the credit risk related to these cash and
cash equivalents is minimal.
Financial Instruments:
The Company uses interest rate hedge contracts for the purpose of hedging
interest rate exposures, which involve the exchange of fixed and floating rate
interest payments without the exchange of the underlying principal amounts.
The amounts to be paid or received are accrued as interest rates change and
recognized over the life of the contracts as an adjustment to interest
expense. Gains and losses realized from the termination of interest rate
hedges are recognized over the remaining life of the hedge contract. As a
policy, the Company does not engage in speculative or leveraged transactions,
nor does the Company hold or issue financial instruments for trading purposes.
Reclassifications:
Certain amounts in previously issued financial statements have been
reclassified to conform to the presentation adopted in the 1996 consolidated
financial statements.
Unaudited Financial Statements:
The unaudited consolidated balance sheet as of September 30, 1997 and the
unaudited consolidated statements of operations, shareholders' equity and cash
flows for the nine months ended September 30, 1996 and 1997, in the opinion of
management, have been prepared on the same basis as the audited consolidated
financial statements and include all significant adjustments (consisting
primarily of normal recurring adjustments) considered necessary for a fair
presentation of the results of these interim periods. The data disclosed in
these notes to the consolidated financial statements for these periods are
also unaudited. Operating results for the nine-month period ended September
30, 1997 are not necessarily indicative of the results for the entire year.
3. PUBLIC OFFERINGS:
Initial Offering:
In June 1996, the Company completed an initial public offering of its Common
Stock resulting in the sale of 12,448,350 shares (including 1,448,350 shares
from the underwriters' exercise of over-allotment options) at a
S-173
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
price of $21 per share (the Initial Offering). Net proceeds to the Company
were $240,453. In connection with the Initial Offering, Blackstone Real Estate
Advisors, L.P. and certain of its affiliates (collectively, Blackstone)
exercised an option to receive 2,133,333 shares of Common Stock of the Company
for an exercise price of $23,300.
In connection with the Initial Offering, the Company acquired all of
Blackstone's equity interests in 13 of the Owned Hotels for a cash purchase
price of $124,400, and Blackstone contributed to the Company its equity
interest in one Owned Hotel in consideration of $8,300 of Common Stock of the
Company. Additionally, in connection with the Initial Offering, the principal
shareholders of IHC contributed to the Company all of the outstanding shares
of common stock of IHC and their equity interests in these 14 Owned Hotels in
exchange for Common Stock of the Company. The acquisition of Blackstone's
equity interests has been accounted for using the purchase method of
accounting, except that carryover basis was used for 9.3% of the acquired
interests. The contributions of IHC's common stock and equity interests in
hotels in exchange for Common Stock of the Company have been accounted for
using carryover bases.
Follow-on Offering:
In December 1996, the Company completed a follow-on public offering of
4,000,000 shares of its Common Stock at a price of $25 per share (the Follow-
on Offering). In January 1997, the underwriters purchased an additional
600,000 shares of Common Stock at $25 per share pursuant to over-allotment
options. Net proceeds to the Company were $93,720 from the Follow-on Offering
and $14,286 from the exercise of the over-allotment options. The Company
recorded the exercise of the over-allotment options as stock subscription
receivable, net of the underwriting discount, in the consolidated balance
sheets as of December 31, 1996.
4. POST-INITIAL OFFERING ACQUISITIONS:
Subsequent to the Initial Offering and related transactions discussed in
Note 3, the Company acquired 13 hotels with an aggregate purchase price of
approximately $323,579. On November 15, 1996, the Company acquired for
1,957,895 shares of Common Stock the management and leasing businesses
affiliated with Equity Inns, Inc., a publicly traded real estate investment
trust, which resulted in goodwill of approximately $21,691. The businesses
consisted of eight management contracts and 48 long-term lease contracts. The
above acquisitions were accounted for using the purchase method of accounting.
One of the hotels acquired since the Initial Offering was purchased from an
entity partially owned by a significant shareholder (see Note 17).
5. PRO FORMA FINANCIAL INFORMATION (UNAUDITED):
The following unaudited pro forma information is presented as if the
transactions discussed in Notes 3, 4 and 8 had occurred on January 1, 1995. In
management's opinion, all pro forma adjustments necessary to reflect the
effects of these transactions have been made. The pro forma information does
not include earnings on the Company's pro forma cash and cash equivalents or
certain one-time charges to income, and does not purport to present what the
actual results of operations of the Company would have been if the previously
mentioned transactions had occurred on such date or to project the results of
operations of the Company for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1996
----------- -----------
<S> <C> <C>
Total revenues..................................... $445,472 $477,506
Operating income................................... 59,891 81,265
Net income......................................... 19,023 32,948
Pro forma earnings per common share and common
share equivalent.................................. .54 .93
Weighted average common shares and common share
equivalents....................................... 35,387,677 35,387,677
</TABLE>
S-174
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------ -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Land......................................... $ -- $ 95,192 $ 139,369
Buildings and improvements (15 to 40 years).. 678 545,565 901,977
Furniture, fixtures and equipment (5 to 10
years)...................................... 3,776 112,808 171,853
Construction in progress..................... -- 669 15,026
------ -------- ----------
4,454 754,234 1,228,225
Less accumulated depreciation................ 2,560 45,083 87,934
------ -------- ----------
$1,894 $709,151 $1,140,291
====== ======== ==========
</TABLE>
Depreciation expense was approximately $421, $467 and $8,420 for the years
ended December 31, 1994, 1995 and 1996, respectively.
7. INTANGIBLE AND OTHER ASSETS:
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- SEPTEMBER 30,
1995 1996 1997
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Management contracts (3 to 10 years)........... $22,794 $24,825 $ 8,194
Lease contracts (15 years)..................... -- 22,600 24,932
Goodwill (25 years)............................ -- 21,691 22,225
Deferred financing fees (3 to 7 years)......... 2,101 14,862 17,995
Other.......................................... 2,088 4,477 12,515
------- ------- -------
26,983 88,455 85,861
Less accumulated amortization.................. 17,794 21,863 10,367
------- ------- -------
$ 9,189 $66,592 $75,494
======= ======= =======
</TABLE>
8. LONG-TERM DEBT:
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- SEPTEMBER 30,
1995 1996 1997
------- -------- ----------------
(UNAUDITED)
REFER TO NOTE 21
<S> <C> <C> <C>
Term Loans and Revolving Credit Facili-
ty...................................... $ -- $321,600 $613,150
CGL Loan................................. -- 29,250 29,250
Owned Hotel Loans........................ -- 56,420 132,434
IHC revolving credit and term loan facil-
ity..................................... 35,000 -- --
Other.................................... 1,270 541 670
------- -------- --------
36,270 407,811 775,504
Less current portion..................... 363 11,767 61,059
------- -------- --------
$35,907 $396,044 $714,445
======= ======== ========
</TABLE>
In June 1996, the Company entered into a $195,000 Term Loan and a $100,000
Revolving Credit Facility (collectively, the Credit Facilities). In October
1996, the Company amended the Credit Facilities by converting
S-175
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the borrowings outstanding under the Revolving Credit Facility to a $100,000
Term Loan and increasing the Revolving Credit Facility capacity to $200,000.
The Term Loans are payable through June 2003 in escalating quarterly
installments and a final balloon payment. The Revolving Credit Facility,
payable in June 2003, provides for borrowings under letters of credit,
revolving loans for working capital and acquisition loans to be used to
finance additional hotel acquisitions. The Credit Facilities include certain
mandatory prepayment provisions.
The Company purchased a subordinated participation interest in the $119,250
mortgage indebtedness of Interstone/CGL Partners, L.P., a majority-owned
subsidiary of the Company (the CGL Loan). As of December 31, 1996, on a
consolidated basis, the Company had outstanding, in addition to the Credit
Facilities, $29,250 of the CGL Loan. The CGL Loan requires no principal
payments until the indebtedness matures in June 2003. All other terms of the
CGL Loan, including interest and covenants, are identical to the Credit
Facilities.
Interest on the Credit Facilities and the CGL Loan is payable subject to the
Company's election of the base rate option or the Eurodollar option. The base
rate option is the lender's prime rate plus 1%. The Eurodollar option is LIBOR
plus 2%. The Company elected the Eurodollar option to be in effect as of
December 31, 1996, which was 7.69%. Additionally, the Company has entered into
five interest rate hedge contracts: an interest rate cap that limits LIBOR to
6% on up to $105,000 of the indebtedness through June 1999; an interest rate
cap that limits LIBOR to 6% on up to $234,750 of the indebtedness through
October 1997; an interest rate cap that limits LIBOR to 6% on up to $225,900
of the indebtedness from October 1997 through October 1998; an interest rate
cap that limits LIBOR to 7% on up to $208,750 of the indebtedness from October
1998 through October 1999; and an interest rate swap that provides for a fixed
LIBOR rate of 5.8% on $72,000 of the indebtedness through December 2000.
A nonrefundable commitment fee equal to 3/8 of 1% of the unused portion of
the Revolving Credit Facility is payable quarterly. Additionally, letter of
credit fees equal to 2.25% of the outstanding letters of credit are payable
quarterly.
The Credit Facilities and the CGL Loan contain certain restrictive
covenants, including several financial ratios and restrictions on the payment
of dividends, among other things. The Company has pledged substantially all of
the assets of the Company and an interest in the rights to the cash flows of
certain of the Owned Hotels as collateral for the Credit Facilities and the
CGL Loan.
In December 1996, the Company incurred loans (the Owned Hotel Loans)
totaling $56,420 related to the acquisitions of two hotels. One of the Owned
Hotel Loans is non recourse and is due in the form of a balloon payment of
$31,000 in January 1998. The other loans are payable monthly through October
2005 and include certain mandatory prepayment provisions. Interest is payable
monthly on the Owned Hotel Loans at rates between 7.5% and 9.08% as of
December 31, 1996. The Owned Hotel Loans are collateralized by the assets of
the two hotels.
Aggregate scheduled maturities of long-term debt for each of the five years
ending December 31 and thereafter are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 11,767
1998............................................................. 50,495
1999............................................................. 31,024
2000............................................................. 46,057
2001............................................................. 57,581
Thereafter....................................................... 210,887
---------
$ 407,811
=========
</TABLE>
S-176
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. COMMITMENTS AND CONTINGENCIES:
The Company provides financial guarantees to the owners of the Leased Hotels
for certain minimum operating performance levels, which are annually increased
by the consumer price index and expire through 2011. Presently, management
does not expect to incur any claims against these lease guarantees. Minimum
future lease payments are computed based on the base rent of each lease, as
defined, and are as follows:
<TABLE>
<S> <C>
1997.............................................................. $ 25,709
1998.............................................................. 25,709
1999.............................................................. 25,709
2000.............................................................. 25,709
2001.............................................................. 25,709
Thereafter........................................................ 254,944
--------
$383,489
========
The Company accounts for the leases of office space (the office leases
expire at varying times through 2002), certain office equipment (the equipment
leases expire at varying times through 2003) and land leases associated with
two of the Owned Hotels (the land leases expire at varying times through 2086)
as operating leases. Total rent expense amounted to approximately $739, $912
and $2,922 for the years ended December 31, 1994, 1995 and 1996, respectively.
The following is a schedule of future minimum lease payments under these
leases:
1997.............................................................. $ 2,975
1998.............................................................. 2,692
1999.............................................................. 2,358
2000.............................................................. 1,988
2001.............................................................. 1,728
Thereafter........................................................ 35,527
--------
$ 47,268
========
</TABLE>
In the ordinary course of business, various lawsuits, claims and proceedings
have been or may be instituted or asserted against the Company. Based on
currently available facts, management believes that the disposition of matters
that are pending or asserted will not have a material adverse effect on the
consolidated financial position, results of operations or liquidity of the
Company.
10. PREFERRED AND COMMON STOCK:
The Company has the authority to issue up to 25,000,000 shares of preferred
stock having such rights, preferences and privileges as designated by the
Board of Directors of the Company. The rights of the holders of the Company's
Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any shares of such preferred stock that may be issued in the
future.
S-177
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following represents shares of Common Stock authorized for issuance
under the Company's stock plans:
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Equity Incentive Plan, including the Stock Option Plan for
Non-Employee Directors....................................... 2,500,000
Employee Stock Purchase Plan.................................. 500,000
Management Bonus Plan......................................... 250,000
---------
3,250,000
=========
</TABLE>
The Equity Incentive Plan provides for options to be granted to eligible
employees to purchase shares of Common Stock. The option price is established
at the grant date at a price not less than the current market value. The
options generally vest over a three year period and expire after ten years.
The Employee Stock Purchase Plan is designed to be a non-compensatory plan,
whereby eligible employees may elect to withhold a maximum of 8% of their
salary and use such amounts to purchase Common Stock. The Management Bonus
Plan provides for bonuses to be paid to key executives of the Company based
upon the achievement of specified goals of both the Company and the executive.
Bonuses are based on a percentage of the individual's annual salary, and up to
20% of each executive's bonus, at the discretion of management, may be payable
in the form of shares of Common Stock.
The Company has elected to account for stock-based employee compensation
arrangements under the provisions of Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" rather than Statement of
Financial Accounting Standard (SFAS) No. 123 "Accounting for Stock-Based
Compensation." If compensation cost had been determined based on the fair
value at the grant dates according to SFAS No. 123, the Company's net loss
would have been increased to the pro forma amount shown below:
<TABLE>
<CAPTION>
1996
--------
<S> <C>
Net loss:
As reported.................................................... $ (1,616)
Pro forma...................................................... (2,781)
</TABLE>
The effect on earnings per share is not meaningful and, therefore, has not
been provided (see Note 19).
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes pricing model with the following assumptions:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Weighted average risk-free interest rate............................... 6.3%
Expected dividend yield................................................ --
Expected volatility.................................................... 30.3%
Expected life (number of years)........................................ 3
</TABLE>
S-178
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The transactions for stock options issued under the Equity Incentive Plan
and the Stock Option Plan for Non-Employee Directors were as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGED
-------------------------------
NUMBER OF REMAINING VALUE EXERCISE RANGE OF
OPTIONS LIFE (YEARS) PER SHARE PRICE EXERCISE PRICE
--------- ------------ --------- -------- --------------
<S> <C> <C> <C> <C> <C>
Outstanding, December
31, 1995............... --
Granted................. 1,589,250 $22.66 $21.00--$26.75
Exercised............... -- -- --
Canceled................ 12,500 $21.00 $21.00
---------
Outstanding, December
31, 1996............... 1,576,750 9.6 $6.44 $22.66 $21.00--$26.75
=========
Exercisable, December
31, 1996............... --
Shares reserved for
future options as of
December 31, 1996...... 923,250
</TABLE>
11. NON-CASH COMPENSATION:
In December 1995, IHC granted stock options to certain officers to purchase
shares of common stock of IHC. The exercise price of certain stock options was
determined to be below fair market value based on an independent market
valuation. No stock options were exercisable at December 31, 1995. The
unearned compensation related to the stock options granted by IHC was being
charged to expense over the vesting period.
Prior to the Initial Offering, the Company issued 785,533 shares of Common
Stock to certain employees in consideration for the cancellation of the stock
options issued by IHC in 1995. The shares were valued based on the estimated
value of the Common Stock at the time the shares were issued. As a result of
the cancellation of the stock options issued by IHC in 1995 and the issuance
of the Common Stock at no cost to the recipients, the Company reversed the
unamortized unearned compensation recorded by IHC in 1995 and recorded non-
cash compensation expense of $11,896.
12. INCOME TAXES:
Prior to the consummation of the Initial Offering, the Company's
predecessors were organized as S corporations, partnerships and limited
liability companies for federal and state income tax purposes. Accordingly,
the predecessors were not subject to income tax because all taxable income or
loss of the predecessors was reported on the tax returns of their owners. As a
result of the change in the Company's tax status to a C corporation concurrent
with the Initial Offering, the Company recorded income tax expense of $4,881
to establish deferred taxes existing as of the date of the change in tax
status.
S-179
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The provision for income taxes for the year ended December 31, 1996
consisted of:
<TABLE>
<S> <C>
Current
Federal.......................................................... $ 4,153
State............................................................ 504
-------
4,657
-------
Deferred:
Federal.......................................................... 6,223
State............................................................ 448
-------
6,671
-------
Income tax expense................................................ 11,328
Income tax benefit from extraordinary loss........................ 3,997
-------
$15,325
=======
</TABLE>
A reconciliation of the Company's effective tax rate to the federal
statutory rate for the year ended December 31, 1996 follows:
<TABLE>
<S> <C>
Federal statutory rate................................................ 35%
State taxes, net of federal benefit................................... 2
IHC loss as an S corporation.......................................... 23
Conversion from S corporation to C corporation........................ 50
Other................................................................. 7
---
Effective tax rate.................................................... 117%
===
</TABLE>
The components of net deferred tax assets and liabilities as of December 31,
1996 consisted of:
<TABLE>
<CAPTION>
DEFERRED TAX
------------------
ASSETS LIABILITIES
------ -----------
<S> <C> <C>
Depreciation and amortization........................... $ -- $10,809
Minority interests...................................... 7,298 --
Payroll and related benefits............................ 1,588 --
Self-insured health trust............................... 927 --
Other................................................... -- 1,436
------ -------
$9,813 $12,245
====== =======
</TABLE>
13. EXTRAORDINARY ITEMS:
In 1996, the Company recorded an extraordinary loss of $7,733, net of a tax
benefit of $3,997, as a result of the early extinguishment of certain debt.
The extraordinary loss related principally to the payment of prepayment
penalties and loan commitment fees and the write-off of deferred financing
fees.
S-180
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
14. SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest and income taxes consisted of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1994 1995 1996 1996 1997
---- ---- ------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest................................ $261 $507 $13,629 $ 5,957 $ 29,729
Income taxes............................ -- -- 7,710 -- 8,039
</TABLE>
Non-cash investing and financing activities consisted of:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1994 1995 1996 1996 1997
------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Notes payable issued to acquire
contracts....................... $1,176 $ -- $ -- $ -- $ --
Assumption of liability by
principal shareholder........... -- 1,220 -- -- --
Assumption of shareholders'
liability....................... -- 12,295 --
Unearned compensation related to
1995 stock options.............. -- 3,263 (3,263) -- --
Unearned compensation related to
Common Stock (Note 11).......... -- -- 379 -- --
Notes payable issued to
shareholders.................... -- -- 30,000 30,000 --
Stock subscription receivable,
net............................. -- -- 14,286 -- --
Issuance of Common Stock for
acquisitions.................... -- -- 54,800 8,300 --
Assumption of long-term debt
related to acquisitions......... -- -- -- -- 55,150
</TABLE>
15. INSURANCE:
The Company provides certain insurance coverage to hotels under the terms of
the various management and lease contracts. This insurance is generally
arranged through a third-party carrier. Northridge Insurance Company
(Northridge), a subsidiary of the Company, reinsures a portion of the coverage
from this third-party primary insurer. The policies provide for layers of
coverage with minimum deductibles and annual aggregate limits. The policies
are for coverage relating to innkeepers' losses (general/comprehensive
liability), wrongful employment practices, garagekeeper's legal liability,
replacement cost automobile losses and real and personal property insurance.
All policies are short-duration contracts and expire through March 1997.
The Company is liable for any deficiencies in the IHC Employee Health and
Welfare Plan (and related Health Trust), which provides employees of the
Company with group health insurance benefits. The Company has a financial
indemnity liability policy with Northridge which indemnifies the Company for
certain obligations for the deficiency in the related Health Trust. The
premiums for this coverage received from the properties managed by the
Company, net of intercompany amounts paid for employees at the Company's
corporate offices and Owned and Leased Hotels, are recorded as direct premiums
written. There was no deficiency in the related Health Trust at December 31,
1996.
All accounts of Northridge are classified with assets and liabilities of a
similar nature in the consolidated balance sheets. The consolidated statements
of operations include the insurance income earned and related
S-181
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
insurance expenses incurred. The insurance income earned has been included in
other management-related fees in the consolidated statements of operations and
is comprised of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Reinsurance premiums written....................... $ 3,428 $ 4,981 $ 4,848
Direct premiums written............................ 2,581 2,477 2,032
Reinsurance premiums ceded......................... -- (422) (414)
Change in unearned premiums reserve................ 42 (62) 158
Loss sharing premiums.............................. 910 698 1,101
------- ------- -------
Insurance income................................... $ 6,961 $ 7,672 $ 7,725
======= ======= =======
</TABLE>
16. FINANCIAL INSTRUMENTS:
The carrying values and fair values of the Company's financial instruments
at December 31 consisted of:
<TABLE>
<CAPTION>
1995 1996
---------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $14,035 $14,035 $ 32,323 $ 32,323
Restricted cash......................... 2,096 2,096 15,995 15,995
Investment in marketable securities..... -- -- 540 540
Noncurrent receivables.................. 9,937 9,937 4,643 4,643
Interest rate caps...................... -- -- 5,056 3,268
Interest rate swap...................... -- -- -- 976
Long-term debt, including current por-
tion................................... 36,207 36,207 407,811 406,835
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and cash equivalents and restricted cash:
The carrying amounts approximate fair value because of the short maturity of
these investments.
Investment in marketable securities:
The fair value of the investment in marketable securities is based on the
quoted market price at December 31, 1996, and is included in investments in
hotel real estate in the consolidated balance sheets.
Noncurrent receivables:
The fair value of noncurrent receivables is based on anticipated cash flows
and approximates carrying value.
Interest rate hedges:
The Company manages its debt portfolio by using interest rate caps and swaps
to achieve an overall desired position of fixed and floating rates. The fair
value of interest rate hedge contracts is estimated based on quotes from the
market makers of these instruments and represents the estimated amounts that
the Company would expect to receive or pay to terminate the contracts. Credit
and market risk exposures are limited to the net interest
S-182
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
differentials. The Company is exposed to credit loss in the event of
nonperformance by counterparties on the above instruments, but does not
anticipate nonperformance by any of the counterparties.
Long-term debt:
The fair value of long-term debt is based on interest rates that are
currently available to the Company for issuance of debt with similar terms and
remaining maturities. The fair value of the notional amount of long-term debt
hedged by the swap has been reduced by the fair value of the swap.
17. FRANCHISE AGREEMENTS AND RELATED PARTY TRANSACTIONS:
Franchise Agreements:
The Owned Hotels and the Leased Hotels are generally operated under
franchise agreements with various franchisors. The Owned Hotels are licensed
under the following franchise names: Marriott (13), Hilton (4), Radisson (4),
Embassy Suites (2), Westin (2) and Holiday Inn (1). The Leased Hotels are
licensed under the following franchise names: Hampton Inn (32), Holiday Inn
(5), Residence Inn (5), Super 8 Motel (5), Sleep Inn (4), Homewood Suites (3)
and Comfort Inn (3). The terms of the franchise agreements range from 2 to 28
years and require ongoing fees principally based on a percentage of hotel room
revenues and food and beverage revenues.
Revenues and Accounts Receivable:
Of the total revenues earned, approximately $6,678, $7,886 and $7,386 for
the years ended December 31, 1994, 1995 and 1996, respectively, was earned
from hotels in which a significant shareholder of the Company has an ownership
interest. Accounts receivable of approximately $1,028 and $302 at December 31,
1995 and 1996, respectively, was due from these hotels. The Company has waived
the management fees for one of these hotels through November 1998.
Transaction with Significant Shareholders:
In December 1996, the Company acquired a 97.12% interest in one hotel for
$23,787, which includes a $10,000 contribution for future capital expenditures
and $9,627 in loans to the previous owners. Significant shareholders of the
Company previously owned a 50% interest in the hotel, one of which retained a
1.44% limited partnership interest as a result of the acquisition. The $9,627
in loans incurred as a result of the acquisition includes a $2,733 note
payable to the significant shareholder, which is included in the Owned Hotel
Loans described in Note 8.
18. PREDECESSOR ENTITY EQUITY TRANSACTIONS:
In 1994, IHC recapitalized certain companies and created two classes of
common stock. The recapitalization resulted in the reclassification of $21
between common stock and paid-in capital.
Pursuant to a reorganization in 1995, IHC merged a number of companies and
created subsidiaries for certain other entities which were all under common
control. The reorganization was accounted for in a manner similar to that used
in pooling-of-interests accounting. Additionally, concurrent with the
reorganization, IHC assumed a $12,995 obligation of its principal shareholder
that was accounted for as a distribution of capital. IHC also recorded a
contribution of capital when indebtedness in the amount of $1,220 that was
owed to an affiliate was assumed by the principal shareholder. The
reorganization resulted in the reclassification of $42 between common stock
and paid-in capital and the reclassification of $4,478 between partners'
capital and paid-in capital.
S-183
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In March 1996, the Company made a capital distribution by issuing notes
payable to the shareholders of IHC in the aggregate amount of $30,000. Such
notes were repaid in June 1996 with the proceeds from the Initial Offering.
19. EARNINGS PER SHARE:
Prior to the consummation of the Company's Initial Offering, the
predecessors of the Company were organized as S corporations, partnerships and
limited liability companies. Accordingly, the Company believes that the
earnings per share calculations required to be presented are not meaningful
for periods prior to the Initial Offering and, therefore, have not been
provided. As such, earnings per share for the three-month periods ended
September 30, 1996 and December 31, 1996 and pro forma earnings per share for
the years ended December 31, 1995 and 1996 are a more meaningful measure of
the Company's results of operations (see Notes 5 and 20).
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following table sets forth certain items included in the Company's
unaudited consolidated financial statements for each quarter of fiscal 1996
and 1995:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
------- -------- ---------- ----------
<S> <C> <C> <C> <C>
FISCAL 1996:
Total revenues..................... $12,295 $ 15,946 $ 65,530 $ 96,614
Operating income (loss)............ 4,607 (5,775) 16,602 18,699
Income (loss) before extraordinary
items............................. 4,236 (12,299) 7,366 6,814
Net income (loss).................. 4,236 (19,942) 7,366 6,724
Earnings per common share and
common share equivalent (Note
19)............................... -- -- .26 .22
Weighted average common shares and
common share equivalents.......... -- -- 28,664,549 30,586,186
FISCAL 1995:
Total revenues..................... $10,249 $ 11,403 $ 11,236 $ 12,130
Operating income................... 3,293 4,636 4,409 3,199
Net income......................... 3,345 4,712 4,472 3,310
</TABLE>
21. SUBSEQUENT EVENTS:
Merger:
On December 2, 1997, the Company entered into an Agreement and Plan of
Merger with Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company (collectively, Patriot) pursuant to which the
Company will merge into Patriot, with Patriot being the survivor. The
transaction is contingent upon approval by the shareholders of the Company and
Patriot.
Long-Term Debt:
In May 1997, the Company amended its credit facilities by converting certain
borrowings outstanding under the revolving credit facility to a $135 million
term loan and increasing the revolving credit facility from $250 million to
$350 million. In addition, the Company's permitted non-recourse and
subordinated debt capacity was increased from $250 million to $290 million.
The interest rate on the revolving credit facility and certain term debt was
amended to be subject to reduced rates based on leveraged EBITDA ratio
benchmarks. The interest rate on the $135 million term loan is based on a
fixed percentage of 2.25 over a reserve-adjusted Eurodollar rate.
S-184
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Acquisitions:
During the nine months ended September 30, 1997, the Company acquired 11
Owned Hotels with a total of 3,619 rooms and minority interests in four other
hotels for a total acquisition price of $406,700 with closing costs of
approximately $5,300. Such acquisitions were accounted for using the purchase
method of accounting. In connection with three of these acquisitions, the
Company entered into operating leases for certain furniture, fixtures and
equipment of these hotels with an approximate fair market value of $17,000. In
addition, one Owned Hotel with 121 rooms, which the Company developed for a
total cost of approximately $9,700, was opened in September 1997. The Company
also entered into long-term operating leases with Equity Inns, Inc. for 40
hotels during this same period.
22. NEW ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 128 "Earnings Per Share." The new standard, which is effective
for the fiscal year ending December 31, 1997, revises the disclosure
requirements and simplifies the computations of earnings per share. Management
believes that the impact of this standard will not be material.
In June 1997, the FASB issued SFAS No. 131 "Disclosures About Segments of an
Enterprise and Related Information." The new standard, which is effective for
the fiscal year ending December 31, 1998, requires that all public business
enterprises report information about operating segments, as well as specifies
revised guidelines for determining an entity's operating segments and the type
and level of financial information to be disclosed. Management has not yet
determined the impact of this standard.
S-185
<PAGE>
INTERSTATE HOTELS COMPANY
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
The following unaudited Pro Forma Statements of Income of the Company for
the year ended December 31, 1996 and for the nine months ended September 30,
1997 assume the following transactions have occurred at the beginning of the
periods presented:
(i) the Initial Offering and Follow-on Offering
(ii) the acquisitions of 39 Owned Hotels in connection with and since the
Initial Offering through September 30, 1997
(iii) the acquisition of the management and leasing business affiliated
with Equity Inns, Inc., in which the Company entered into long-term
operating leases for 88 Leased Hotels through September 30, 1997 (the
Equity Inns Transaction)
(iv) the Company's original debt financing associated with the Initial
Offering and all subsequent refinancings through September 30, 1997
In management's opinion, all material pro forma adjustments necessary to
reflect the effects of these transactions have been made. The pro forma
information does not include earnings on the Company's pro forma cash and cash
equivalents or certain other one-time charges to income (such as non-recurring
takeover and repositioning costs associated with acquisitions), and does not
purport to present what the actual results of operations of the Company would
have been if the previously mentioned transactions had occurred on such dates
or to project the results of operations of the Company for any future periods.
S-186
<PAGE>
INTERSTATE HOTELS COMPANY
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION PRO FORMA
COMPANY ADJUSTMENTS(A) TOTAL
------------ --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Hotel revenues................ $ 141,117 $ 551,047 $ 692,164
Management and related fees... 49,268 (8,510) 40,758
Interest income............... 1,656 -- 1,656
------------ ------------ ------------
Total revenues.............. 192,041 542,537 734,578
------------ ------------ ------------
Expenses:
Departmental costs--hotel op-
erations..................... 55,869 197,533 253,402
Direct operating costs of man-
agement company.............. 17,529 1,365 18,894
General and administrative.... 22,978 48,693 71,671
Repairs and maintenance....... 6,079 25,161 31,240
Utilities..................... 5,835 23,344 29,179
Real estate and personal
property taxes and casualty
insurance.................... 5,206 16,815 22,021
Marketing..................... 12,172 52,222 64,394
Management fees............... 349 312 661
Non-cash compensation......... 11,896 (11,896)(B) --
Lease expense................. 3,477 77,667 (C) 81,144
Depreciation and amortiza-
tion......................... 14,862 33,162 (D) 48,024
------------ ------------ ------------
156,252 464,378 620,630
------------ ------------ ------------
Operating income................ 35,789 78,159 113,948
------------ ------------ ------------
Other expenses:
Interest expense.............. 14,077 45,009 (E) 59,086
Minority interests, net....... 270 2,483 (F) 2,753
------------ ------------ ------------
14,347 47,492 61,839
------------ ------------ ------------
Income before income tax ex-
pense.......................... 21,442 30,667 52,109
Income tax expense.............. 15,325 4,476 (G) 19,801
------------ ------------ ------------
Net income...................... $ 6,117 $ 26,191 $ 32,308
============ ============ ============
Pro forma earnings per common
share and common share
equivalent..................... $ 0.90
============
Pro forma weighted average
number of common shares and
common share equivalents
outstanding.................... 35,738
============
</TABLE>
See notes on page S-189.
S-187
<PAGE>
INTERSTATE HOTELS COMPANY
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL ACQUISITION PRO FORMA
COMPANY ADJUSTMENTS(A) TOTAL
------------ --------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Hotel revenues................ $ 436,268 $ 116,483 $ 552,751
Management and related fees... 33,321 (2,444) 30,877
Interest income............... 1,214 -- 1,214
------------ ------------ ------------
Total revenues.............. 470,803 114,039 584,842
------------ ------------ ------------
Expenses:
Departmental costs--hotel
operations................... 152,653 43,913 196,566
Direct operating costs of
management company........... 15,711 -- 15,711
General and administrative.... 45,509 10,177 55,686
Repairs and maintenance....... 18,505 4,985 23,490
Utilities..................... 17,905 3,991 21,896
Real estate and personal
property taxes and casualty
insurance.................... 12,834 3,392 16,226
Marketing..................... 38,455 10,507 48,962
Management fees............... 831 (66) 765
Lease expense................. 54,910 14,763 (C) 69,673
Depreciation and
amortization................. 28,524 5,655 (D) 34,179
------------ ------------ ------------
385,837 97,317 483,154
------------ ------------ ------------
Operating income................ 84,966 16,722 101,688
------------ ------------ ------------
Other expenses:
Interest expense.............. 30,710 9,947 (E) 40,657
Minority interests, net....... 1,802 234 (F) 2,036
------------ ------------ ------------
32,512 10,181 42,693
------------ ------------ ------------
Income before income tax
expense........................ 52,454 6,541 58,995
Income tax expense.............. 19,954 2,464 (G) 22,418
------------ ------------ ------------
Net income...................... $ 32,500 $ 4,077 $ 36,577
============ ============ ============
Pro forma earnings per common
share and common share
equivalent..................... $ 1.02
============
Pro forma weighted average
number of common shares and
common share equivalents
outstanding.................... 35,738
============
</TABLE>
See notes on following page.
S-188
<PAGE>
INTERSTATE HOTELS COMPANY
NOTES TO PRO FORMA STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(A) Represents adjustments to reflect addition of pro forma revenues and
operating expenses for the Owned and Leased Hotels acquired after the
Initial Offering for the period prior to ownership by IHC.
(B) Adjustment to reflect the elimination of one-time non-cash compensation
associated with the Initial Offering.
(C) Adjustment to reflect the pro forma lease expense related to the
acquisition of hotel leases in the Equity Inns transaction.
(D) Adjustment to reflect the pro forma depreciation and amortization expense
related to the acquisitions of the Owned and Leased Hotels acquired after
the initial offering for the period prior to ownership by IHC. Property
and equipment is depreciated using the straight-line method over estimated
useful lives ranging between 15 and 40 years. Furniture, fixtures and
equipment is depreciated using the straight-line method over estimated
useful lives ranging between 5 and 10 years. Deferred expenses are
amortized using the straight-line method over the estimated useful life of
the assets.
(E) Represents adjustment to reflect the net increase in interest expense as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Pro forma interest expense related to the IHC
Term Loans...................................... $ 32,598 $ 23,854
Pro forma interest expense related to the IHC Re-
volving Credit Facility......................... 13,388 7,021
Pro forma interest expense related to the unused
commitment fee on the IHC Revolving Credit
Facility........................................ 587 440
Pro forma interest expense related to various ho-
tel non-recourse loans.......................... 12,513 9,342
Elimination of historical interest expense of
IHC............................................. (14,077) (30,710)
-------- --------
$ 45,009 $ 9,947
======== ========
</TABLE>
Pro forma interest expense on the $430,000 IHC Term Loans is calculated
assuming: (i) principal of $223,000 bears interest at LIBOR (assumed to be
5.5%) plus 2%, (ii) $72,000 bears interest at 7.8%, and (iii) the remainder
bears interest at LIBOR (5.5%) plus 2.25%. Pro forma interest expense on
the IHC Revolving Credit Facility is calculated at LIBOR (5.5%) plus 2%.
Pro forma interest expense related to the unused commitment fee is
calculated at 3/8 of 1% on the available debt remaining on the facility.
Interest on the various hotel non-recourse loans is calculated at rates
varying from LIBOR (5.5%) plus 1.5% to a fixed rate of 9.5% with varying
amortization and maturity dates.
(F) Represents adjustment to reflect the net increase in minority interests
resulting from acquisitions.
(G) Represents adjustment to record estimated income tax expense related to
the pro forma adjustments using an effective income tax rate of 38%.
S-189
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the Merger and Related Transactions
will be passed upon for Wyndham by Locke Purnell Rain Harrell (A Professional
Corporation), Dallas, Texas. Certain legal matters in connection with the
Merger and Related Transactions, the validity of the Paired Shares to be
issued pursuant to the Merger and the validity of the Merger Subscribed Shares
to be issued pursuant to the Merger Subscription,
the validity of the Paired Shares to be issued pursuant to the Stock Purchase
and the validity of the Stock Purchase Subscribed Shares to be issued pursuant
to the Stock Purchase Subscription, and the validity of the shares of Series A
Preferred Stock to the issued pursuant to the Stock Purchase will be passed
upon for the Patriot Companies by Goodwin, Procter & Hoar llp, Boston,
Massachusetts. Gilbert G. Menna, an assistant secretary of PAH GP, Inc., a
wholly-owned subsidiary of Patriot REIT, is the sole shareholder of Gilbert G.
Menna, P.C., which is a partner in Goodwin, Procter & Hoar llp. Joseph L.
Johnson III, Esq., an assistant secretary of PAH GP, Inc., is a partner in
Goodwin, Procter & Hoar llp. Kathryn I. Murtagh, Esq., an assistant secretary
of Patriot REIT, Patriot Operating Company and PAH GP, Inc., is a partner in
Goodwin, Procter & Hoar llp.
EXPERTS
The (a) Consolidated Financial Statements of Old Patriot REIT as of December
31, 1996 and 1995 and for the year ended December 31, 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995 and the
related financial statement schedules, (b) the Combined Financial Statements
of the Initial Hotels as of December 31, 1994 and for the year ended December
31, 1994 and the period January 1, 1995 through October 1, 1995, and (c) the
Financial Statements of NorthCoast Hotels, L.L.C. as of December 31, 1996 and
the period April 2, 1996 (inception of operations) through December 31, 1996
appearing in Old Patriot REIT's 1996 Annual Report on Form 10-K (and with
respect to the Consolidated Financial Statements of Old Patriot REIT referred
to above also appearing in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated July 1, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. With respect to the Combined Financial
Statements of the Initial Hotels, such report is based in part on the reports
of Coopers & Lybrand L.L.P., independent accountants, as set forth in their
respective reports for Certain of the Initial Hotels and Troy Hotel Investors.
The (a) Financial Statements of Buckhead Hospitality Joint Venture as of
December 31, 1995 and for the year then ended, (b) the Combined Financial
Statements of Gateway Hotel Limited Partnership and Wenatchee Hotel Limited
Partnership as of December 31, 1995 and for the year then ended, and (c) the
individual Statements of Direct Revenue and Direct Operating Expenses for the
Plaza Park Suites Hotel and the Roosevelt Hotel for the year ended December
31, 1995, appearing in Old Patriot REIT's Current Report on Form 8-K, dated
April 2, 1996, as amended (filed April 17, 1996 and June 14, 1996), have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. The (a)
Statement of Direct Revenue and Direct Operating Expenses of the Mayfair
Suites Hotel for the year ended December 31, 1995, (b) Statement of Direct
Revenue and Direct Operating Expenses of Marriott WindWatch Hotel for the year
ended December 29, 1995, and (c) the Financial Statements of Concorde O'Hare
Limited Partnership as of December 29, 1995 and for the year then ended
appearing in Old Patriot REIT's Current Report on Form 8-K, dated December 5,
1996 (filed December 5, 1996), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference. The (a) Consolidated Financial
Statements of Resorts Limited Partnership as of and for the years ended
December 31, 1996 and 1995, (b) Financial Statements of CV Ranch Limited
Partnership as of and for the years ended December 31, 1996 and 1995, and (c)
Financial Statements of Telluride Resort and Spa Limited Partnership as of and
for the years ended December 31, 1996 and 1995, appearing in Old Patriot
REIT's Current Report on Form 8-K, dated January 16, 1997, as amended (filed
January 31, 1997, February 21, 1997, April 8, 1997, April 9, 1997, and May 19,
1997) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. The (a) Consolidated Financial Statements of GAH-II, L.P. as of
December 31, 1996 and 1995 and for the years then ended, (b) the Financial
S-190
<PAGE>
Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) as of December 31,
1996 and 1995 and for the years then ended, (c) the Financial Statements of
River House Associates (d/b/a Sheraton Gateway Hotel) as of December 31, 1996
and 1995 and for the years then ended, and (d) the Financial Statements of W-L
Tampa, Ltd. (the Sheraton Grand Hotel) as of December 31, 1996 and 1995 and
for the years then ended, appearing in the Joint Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 30, 1997, as amended (filed October 14, 1997 and
October 28, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
ClubHouse Hotels, Inc. as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, (b) the Combined Financial
Statements of ClubHouse Acquisition Hotels as of December 31, 1996 and 1995
and for the years then ended, and (c) the Financial Statements of Valdosta C.
I. Associates, L.P. as of December 31, 1994 and for the year then ended,
appearing in Wyndham's Current Report on Form 8-K, dated July 31, 1997, as
amended (filed August 15, 1997 and September 18, 1997), have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. The (a) Consolidated
Financial Statements of WHG Resorts & Casinos Inc. as of June 30, 1997 and
1996, and for each of the three years in the period ended June 30, 1997 and
the related financial statement schedule, (b) Financial Statements of Posadas
de San Juan Associates as of June 30, 1997 and 1996, and for each of the three
years in the period ended June 30, 1997 and the related financial statement
schedule, (c) Financial Statements of WKA El Con Associates as of June 30,
1997 and 1996, and for each of the three years in the period ended June 30,
1997, and (d) Financial Statements of El Conquistador Partnership L.P. as of
March 31, 1997 and 1996, and for each of the three years in the period ended
March 31, 1997, appearing in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated September 30, 1997 (filed November 12, 1997), and December 10, 1997
(filed December 10, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Each of the above referenced financial
statements are included herein or incorporated herein by reference in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the
year ended December 31, 1994, the Financial Statements of Troy Hotel Investors
as of October 1, 1995 and for the period January 1, 1995 to October 1, 1995
and Troy Park Associates as of December 29, 1994 and for the period January 1,
1994 through December 29, 1994, included in Old Patriot REIT's 1996 Annual
Report on Form 10-K, the statement of Direct Revenue and Direct Operating
Expenses for the Holiday Inn--Miami Airport for the year ended August 31, 1996
included in Old Patriot REIT's Current Report dated December 5, 1996, the
Consolidated Financial Statements of Wyndham Hotel Corporation as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, included in the Report on Form 10-K dated March 26, 1997 of Wyndham
Hotel Corporation, the Combined Financial Statements of Minneapolis Hotels as
of and for the year ended December 31, 1996, the Combined Financial Statements
of Snavely Hotels as of and for the year ended December 31, 1996, and the
combined statement of Direct Revenue and Direct Operating Expenses for the Met
Life Hotels for the year ended December 31, 1996, included in the Report on
Form 8-K dated September 17, 1997, the Financial Statements of SCP ("Buttes")
Inc. as of December 31, 1996 and for the year then ended, included in the
Joint Current Report on Form 8-K dated September 30, 1997, the financial
statements of Royal Palace Hotel Associates (the Buena Vista Palace Hotel) as
of December 31, 1995 and 1996 and for the years then ended, included in the
Joint Current Report on Form 8-K dated December 10, 1997, incorporated by
reference in this Supplement, and the financial statements of Interstate
Hotels Company as of December 31, 1995 and 1996 and for each of the three
years in the period ended December 31, 1996 included in this Supplement and
included in the Report on Form 8-K dated December 10, 1997, which is
incorporated by reference herein have been audited by Coopers & Lybrand,
L.L.P., independent accountants, as set forth in their reports thereon. Each
of the above referenced financial statements have been incorporated by
reference or included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
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The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited
Partnership as of December 31, 1996 and for the year then ended, and the
Financial Statements of Historic Hotel Partners of Nashville, Limited
Partnership as of December 31, 1996 and for the year then ended incorporated
by reference in this Supplement, have been audited by Pannell Kerr Forster PC,
independent auditors, as set forth in their reports thereon. Each of the above
referenced financial statements have been incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and
auditing.
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by reference in this Supplement,
by reference to the Current Report on Form 8-K dated July 1, 1997, and the CHC
International, Inc. Hospitality Division financial statements as of November
30, 1996 and 1995 and for the years then ended, incorporated by reference in
this Supplement, by reference to the Current Report on Form 8-K dated
September 30, 1997, as amended, and the Joint Current Report on Form 8-K dated
December 10, 1997, have been so incorporated in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The Separate and Combined Financial Statements of Patriot REIT and Patriot
Operating Company and its subsidiary (formerly known as Cal Jockey and Bay
Meadows) as of December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996, incorporated in this Supplement by
reference from the Annual Report on Form 10-K for the year ended December 31,
1996 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report with respect thereto (which expresses an unqualified
opinion and includes an explanatory paragraph relating to the proposed merger
and certain disagreements between Patriot REIT and Patriot Operating Company),
which is incorporated herein by reference. The combined financial statements
of the Partnerships of Acquired Hotels as of December 31, 1996 and 1995 and
for each of the two years in the period ended December 31, 1996, incorporated
in this Supplement by reference from the report on Form 8-K/A No. 1 dated
September 30, 1997 of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein
by reference. Each of the financial statements referenced in this paragraph
are incorporated herein by reference in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
appearing in the Joint Current Report on Form 8-K of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company dated
December 10, 1997, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving such reports.
The Financial Statements of each of Wichita C.I. Associates III, L.P.,
Topeka C.I. Associates, L.P., Albuquerque C.I. Associates, L.P. and C.I.
Nashville, Inc. as of December 31, 1995 and 1994 and for the two years in the
period ended December 31, 1995, incorporated by reference in this Supplement
have been audited by Mayer Hoffman McCann L.C., independent auditors, as
stated in their report with respect thereto and incorporated herein by
reference.
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ANNEX S-A
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AMENDMENT NO. 2
TO AGREEMENT AND PLAN OF MERGER
Amendment No. 2 (the "Amendment") dated December 9, 1997, to the Agreement
and Plan of Merger dated as of April 14, 1997 between Patriot American
Hospitality, Inc., a Virginia corporation ("Old Patriot REIT"), and Wyndham
Hotel Corporation, a Delaware corporation ("Wyndham"), as ratified on July 24,
1997 by Patriot American Hospitality, Inc., a Delaware corporation ("Patriot
REIT") and successor by merger to Old Patriot REIT, and Wyndham pursuant to
the Patriot Ratification Agreement, and by Patriot American Hospitality
Operating Company ("Patriot Operating Company"), Patriot REIT, Wyndham and the
Principal Stockholder (as defined in the Merger Agreement) pursuant to the
BMOC Ratification Agreement, and as amended as of November 3, 1997 by
Amendment No. 1 to Agreement and Plan of Merger between Patriot REIT, Patriot
Operating Company and Wyndham (as so ratified and amended, the "Merger
Agreement"). All capitalized terms used in this Amendment and not otherwise
defined herein shall have the meanings set forth in the Merger Agreement.
Whereas, the parties desire to amend the Merger Agreement in certain
respects, subject to the terms and conditions, covenants and agreements set
forth herein.
Now, Therefore, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Section 5.2(a) of Article 5 is hereby deleted in its entirety and
replaced with the following:
"5.2 Conversion of Wyndham Common Stock.
(a)(i) Except as otherwise provided in Section 5.3(a) with respect to
holders of Wyndham Common Stock who make a Cash Election (as defined
therein) and except as otherwise provided herein and in Sections
5.2(a)(ii) and 5.2(a)(iii), at the Effective Time, each share of
Wyndham Common Stock issued and outstanding immediately prior to the
Effective Time (other than those shares of Wyndham Common Stock to be
canceled pursuant to Section 5.2(c)) shall, by virtue of the Merger and
without any action on the part of Wyndham, Patriot, BMOC or the holders
of any of the securities of any of these corporations, be converted
into the right to receive 1.372 Paired Shares of Patriot Stock and BMOC
Stock; provided, however, that in the event that the Average Closing
Price (as hereinafter defined) of a Paired Share of Patriot Stock and
BMOC Stock is less than $21.86 per share (subject to adjustment as
provided below) but greater than or equal to $20.87 per share (subject
to adjustment as provided below), then each share of Wyndham Common
Stock issued and outstanding immediately prior to the Effective Time
(other than those shares of Wyndham Common Stock to be canceled
pursuant to Section 5.2(c)) shall be converted into the right to
receive a number of Paired Shares of Patriot Stock and BMOC Stock equal
to $30.00 divided by the Average Closing Price; provided, further, that
in the event that the Average Closing Price of a Paired Share of
Patriot Stock and BMOC Stock is less than $20.87 per share (subject to
adjustment as provided below), (A) each share of Wyndham Common Stock
issued and outstanding immediately prior to the Effective Time (other
than those shares of Wyndham Common Stock to be canceled pursuant to
Section 5.2(c)) shall be converted into the right to receive a number
of Paired Shares of Patriot Stock and BMOC Stock equal to 1.438 (the
applicable percentage of a share of Patriot Stock to be issued upon
such conversion herein being the "Exchange Ratio"), and (B) Wyndham
shall have the right, waivable by it, to terminate this Agreement
pursuant to Section 10.1(1) without any liability on its part by giving
written notice of its election to do so to Patriot prior to 11:59 p.m.,
Dallas, Texas time on the first business day after the expiration of
the Measurement Period (as hereinafter defined). The Paired Shares of
Patriot Stock and BMOC Stock to be issued to holders of Wyndham Common
Stock in the Merger are referred to herein as the "Stock
Consideration." For purposes of this Agreement, the term "Average
Closing Price" shall mean the average per share closing price of a
Paired Share of Patriot Stock and BMOC Stock as reported on the NYSE
over the twenty (20) trading days immediately preceding the fifth
business day
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prior to the date on which the vote on the proposal to approve the
Merger Agreement occurs at the meeting of Wyndham's stockholders to be
held pursuant to Section 8.3 hereof (such twenty (20) trading day
period being referred to herein as the "Measurement Period").
Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time the outstanding Paired Shares of CJC Stock and
BMOC Stock, the outstanding Paired Shares of Patriot Stock and BMOC
Stock or the outstanding shares of Wyndham Common Stock shall have been
changed, other than pursuant to this Agreement or the Business
Combination Agreement, into a different number of shares or a different
class or series, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares (or if between the date of this Agreement and the effective date
of the Business Combination the outstanding shares of Patriot Stock
shall have been so changed and no adjustment shall have been made on
account thereof pursuant to Section 5.2(a) of the Business Combination
Agreement), the Exchange Ratio and the per share reference prices of
Paired Shares referred to above shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares; provided
that none of Patriot, BMOC or Wyndham shall effect any such change
during or, until the Effective Time, following the Measurement Period.
(ii) If the Effective Time of the Merger shall not have occurred on or
before December 31, 1997 and such failure is not caused by a Wyndham
Caused Delay (as defined herein), then (A) each reference to "$21.86"
in Section 5.2(a)(i) shall be changed to "$27.50", (B) each reference
to "$20.87" in Section 5.2(a)(i) shall be changed to "$25.50", (C) the
reference to "$30.00" in Section 5.2(a)(i) shall be changed to
"$37.73", and (D) the reference to "1.438" in Section 5.2(a)(i) shall
be changed to "1.48".
(iii) A cash amount (the "Additional Per Share Cash Amount") shall be
added to the Stock Consideration into which each share of Wyndham
Common Stock is converted pursuant to Section 5.2(a)(i) and to the Per
Share Cash Amount or Stock Consideration to be received with respect to
each Cash Electing Share pursuant to Section 5.3, which cash amount
shall be equal to the sum of (x) the Pro Forma Dividend Amount (as
defined in Section 5.2(a)(iv)), if any, and (y) if the Effective Time
of the Merger shall not have occurred on or before January 5, 1998 and
such failure is not caused by a Wyndham Caused Delay, the "Per Share
Deferral Amount", which shall be determined as follows:
(A) If the Effective Time is on or before January 31, 1998, then the
Per Share Deferral Amount shall be equal to the product of the Full
Dilution Percentage (as defined herein) and $10,000,000 divided by
the total number of shares of Wyndham Common Stock outstanding
immediately prior to the Effective Time (the "Outstanding Wyndham
Shares");
(B) If the Effective Time is after January 31, 1998, but on or
before February 28, 1998, then the Per Share Deferral Amount shall
be equal to the product of the Full Dilution Percentage and
$21,000,000 divided by the Outstanding Wyndham Shares; or
(C) If the Effective Time is after February 28, 1998, then the Per
Share Deferral Amount shall be equal to the product of the Full
Dilution Percentage and $32,000,000 divided by the Outstanding
Wyndham Shares;
provided, however, that if there shall be in effect an order, ruling or
injunction in any action brought by or on behalf of one or more
stockholders of Wyndham or in the right of Wyndham (a "Wyndham
Stockholder Injunction") that causes the condition in Section 9.1(c)
not to be satisfied, then the Per Share Deferral Amount shall be
determined as follows:
(D) If the Effective Time is after January 5, 1998, but on or before
January 31, 1998, then the Per Share Deferral Amount shall be equal
to zero (0);
(E) If the Effective Time is after January 31, 1998, but on or
before February 28, 1998, then the Per Share Deferral Amount shall
be equal to the product of the Full Dilution Percentage and
$15,000,000 divided by the Outstanding Wyndham Shares; or
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(F) If the Effective Time is after February 28, 1998, then the Per
Share Deferral Amount shall be equal to the Product of the Full
Dilution Percentage and $30,000,000 divided by the Outstanding
Wyndham Shares.
(iv) If any dividend is declared on the Patriot Stock or the BMOC Stock
the record date for which is on or after November 26, 1997 and prior to
the Effective Time, then the term "Pro Forma Dividend Amount" shall be
equal to the aggregate per share amount of all such dividends
multiplied by the Exchange Ratio. In all other cases the "Pro Forma
Dividend Amount" shall be equal to zero (0).
(v) For purposes hereof, a "Wyndham Caused Delay" shall have occurred
(A) if Wyndham fails to cause the condition in Section 9.1(f) of the
Merger Agreement to have been satisfied on or before the Condition
Satisfaction Reference Date as to consents necessary for it to
consummate the Merger or any of the other transactions contemplated by
the Merger Agreement (other than any amendment, consent, authorization,
modification, approval or waiver of Hospitality Properties Trust or an
Affiliate thereof of the type referred to in clause (B) of Section
9.3(j)); (B) if, after December 9, 1997, Wyndham causes the conditions
in any of Sections 9.1(a)(ii), 9.1(d), 9.1(e), 9.1(h) or 9.3(i) to fail
to be satisfied on or before the Condition Satisfaction Reference Date;
provided, that the failure of the condition in Section 9.1(a)(ii) to be
satisfied as a result of a Wyndham Stockholder Injunction shall be
deemed not to have been caused by Wyndham; or (C) if any of the
conditions of Sections 9.3(a), 9.3(b), 9.3(c), 9.3(f) (other than any
amendment, consent, authorization, modification, approval or waiver of
Hospitality Properties Trust or any Affiliate thereof of the type
referred to in clause (B) of Section 9.3(j)), 9.3(h) or 9.3(j) (other
than any amendment, consent, authorization, modification, approval or
waiver of Hospitality Properties Trust or any Affiliate thereof of the
type referred to in clause (B) of Section 9.3(j)) fail to be satisfied
on or before the Condition Satisfaction Reference Date. For purposes
hereof, the "Condition Satisfaction Reference Date" means December 31,
1997 when the term "Wyndham Caused Delay" is used in Sections
5.2(a)(ii) and 10.1(l) and January 5, 1998 when the term "Wyndham
Caused Delay" is used in Section 5.2(a)(iii).
(vi) For purpose hereof, the "Full Dilution Percentage" shall mean (A)
the total number of shares of Wyndham Common Stock outstanding
immediately prior to the Effective Time, divided by (B) the sum of the
total number of shares of Wyndham Common Stock in clause (A) above and
the total number of shares of Wyndham Common Stock as to which Assumed
Options are or may become exercisable (whether or not currently
exercisable)."
2. Section 5.2(b) of Article 5 of the Merger Agreement is hereby amended by
replacing the words "and/or cash consideration in accordance with Section
5.3(a)," with the words "and/or cash consideration in accordance with Sections
5.2(a)(iii) and 5.3(a),"
3. Section 5.2(d) of Article 5 of the Merger Agreement shall be amended by
replacing the words "(iii) each option shall be exercisable for that number of
whole Paired Shares of Patriot Stock and BMOC Stock equal to the product of
the number of shares of Wyndham Common Stock covered by such option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares of Patriot Stock and BMOC
Stock" with the words "(iii) each option shall be exercisable for (x) that
number of whole Paired Shares of Patriot Stock and BMOC Stock equal to the
product of the number of shares of Wyndham Common Stock covered by such option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares of Patriot Stock and BMOC
Stock and (y) an amount in cash equal to the Per Share Deferral Amount
multiplied by the number of shares of Wyndham Common Stock covered by such
option immediately prior to the Effective Time."
4. Section 5.2(d) of Article 5 of the Merger Agreement shall be further
amended by deleting the last sentence thereof in its entirety and replacing it
with the following:
"Patriot, BMOC and Wyndham shall consider in good faith whether any of the
Assumed Options will provide that Patriot or BMOC, as the case may be,
shall have the discretion to settle any option exercise with a cash amount
equal to the difference between (x) the option exercise price and (y) the
fair market
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value of the Paired Shares of Patriot Stock and BMOC Stock, plus the cash
payable, if any, to the holder upon the exercise thereof, less any
applicable tax withholding."
5. Section 5.3(a)(i) of Article 5 of the Merger Agreement is hereby amended
by replacing the words "Notwithstanding the provisions of Section 5.2(a)" with
the words "Notwithstanding the provisions of Sections 5.2(a)(i) and
5.2(a)(ii), and subject to Section 5.2(a)(iii)".
6. The definition of "Per Share Cash Amount" contained in Section 5.3(a)(ii)
of Article 5 of the Merger Agreement is hereby amended by deleting such
definition and replacing it with the following:
"Per Share Cash Amount" shall mean $42.80."
7. The definitions of "Cash Election Price" and "Cash Conversion Number"
contained in Section 5.3(a)(ii) of Article 5 of the Merger Agreement are
hereby amended by deleting such definitions and replacing the definition of
"Cash Conversion Number" with the following:
"Cash Conversion Number" shall mean 2,336,448."
8. Section 5.4(a) of Article 5 of the Merger Agreement is hereby amended by
replacing the words "the cash in lieu of Excess Paired Shares, if any" with
the words "all Additional Per Share Cash Amounts, if any, the cash in lieu of
Excess Paired Shares, if any".
9. Section 5.4(b) of Article 5 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"(b) Promptly after the Effective Time, the parties hereto shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and
shall be in such form and have such other provisions as Patriot and BMOC
may reasonably specify and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates printed "back-
to-back' evidencing Paired Shares of Patriot Stock and BMOC Stock and all
Additional Per Share Cash Amounts, if any, cash in lieu of Excess Paired
Shares, if any, and fractional Paired Shares, if any. Upon surrender of a
Certificate for cancellation to the Exchange Agent and delivery of such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto to the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate
representing the number of whole Paired Shares of Patriot Stock and BMOC
Stock to which such holder shall be entitled, and (y) a check representing
the amount payable to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a), if any, plus all Additional Per Share
Cash Amounts to which such holder is entitled, if any, plus the amount of
cash in lieu of Excess Paired Shares, if any, and fractional Paired Shares,
if any, due such holder plus the amount of any dividends or distributions,
if any, pursuant to Section 5.4(c), after giving effect to any required
withholding tax, and the Certificate so surrendered shall forthwith be
canceled. No interest will be paid or accrued on the amount payable to
holders of Wyndham Common Stock who have made a Cash Election pursuant to
Section 5.3(a), if any, the Additional Per Share Cash Amounts, if any, the
cash in lieu of Excess Paired Shares, if any, and fractional Paired Shares,
if any, or on the dividends or distributions, if any, due and payable to
holders of Certificates pursuant to this Section 5.4. In the event of a
transfer of ownership of Wyndham Common Stock which is not registered in
the stock transfer records of Wyndham, a certificate representing the
proper number of Paired Shares of Patriot Stock and BMOC Stock, together
with a check for the Additional Per Share Cash Amounts, if any, plus the
cash to be paid to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a), plus cash to be paid in lieu of Excess
Paired Shares, if any, and fractional Paired Shares, if any, plus, to the
extent applicable, the amount of any dividends or distributions, if any,
due and payable pursuant to Section 5.4(c), may be issued to such a
transferee if the Certificate representing shares of such Wyndham Common
Stock is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid."
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10. Section 5.4(f) of Article 5 of the Merger Agreement is hereby amended by
replacing the words "(including any cash for Excess Paired Shares and
fractional Paired Shares)" with the words "(including any Additional Per Share
Cash Amounts and any cash for Excess Paired Shares and fractional Paired
Shares)".
11. Section 5.5 of Article 5 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"5.5 Return of Exchange Fund. Any portion of the Exchange Fund (including
any cash payable to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a), any Additional Per Share Cash Amounts,
any cash for Excess Paired Shares and fractional Paired Shares, any
dividends or distributions of Patriot or BMOC and any shares of Patriot
Stock or any Subscribed Shares) that remains unclaimed by the former
stockholders of Wyndham one year after the Effective Time shall be
distributed as follows: any cash payable to holders of Wyndham Common Stock
who have made a Cash Election pursuant to Section 5.3(a), any Additional
Per Share Cash Amounts, any cash for Excess Paired Shares and fractional
Paired Shares, any dividends or distributions of Patriot and any shares of
Patriot Stock shall be returned to Patriot and any dividends or
distributions of BMOC and any Subscribed Shares shall be returned to BMOC
(provided that Patriot and BMOC shall issue said cash or shares in
accordance with this Article 5 to former stockholders of Wyndham who
thereafter surrender their Certificates), subject to the provisions and
effect of applicable abandoned property, escheat or similar laws. Any
former stockholders of Wyndham who have not theretofore complied with this
Article 5 shall thereafter look only to Patriot for payment of any cash
consideration payable as a result of the Merger or for issuance or payment
of that portion of their Paired Shares representing Patriot Stock and cash
in lieu of Excess Paired Shares, if any, and fractional Paired Shares, if
any, and to BMOC for issuance or payment of that portion of their Paired
Shares representing BMOC Stock (plus, in each case, dividends and
distributions to the extent set forth in Section 5.4(c), if any), as
determined pursuant to this Agreement, without any interest thereon. None
of Patriot, BMOC, Wyndham, the Exchange Agent or any other person shall be
liable to any former holder of shares of Wyndham Common Stock for any
shares of stock or cash properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws."
12. Section 5.6 of Article 5 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"5.6 Lost or Stolen Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by Patriot and BMOC, the posting by such person
of a bond in such reasonable amount as Patriot and BMOC may direct as
indemnity against any claim that may be made against it with respect to
such Certificate, the Exchange Agent or Patriot and BMOC will issue in
exchange for such lost, stolen or destroyed Certificate the Paired Shares
of Patriot Stock and BMOC Stock and all Additional Per Share Cash Amounts,
if any, cash in lieu of Excess Paired Shares, if any, and fractional Paired
Shares, if any, to which such person is entitled under Section 5.4(b) (and
to the extent applicable, dividends and distributions payable pursuant to
Section 5.4(c))."
13. Section 8.2(f) of Article 8 of the Merger Agreement is hereby amended by
adding a new paragraph at the end thereof reading in its entirety as follows:
"The execution of any definitive agreement prior to the Effective Time
for a transaction by Patriot or any of the Patriot Subsidiaries or by BMOC
or any of the BMOC Subsidiaries that provides for or would have the effect
of causing a Change of Control (as defined below) shall require the
approval of a majority of the members of the Interim Transactions
Committee. A "Change of Control" shall be deemed to have occurred with
respect to a Transaction if (i) the terms thereof provide for a majority of
the directors of Patriot or BMOC (or of the surviving entity if either
Patriot or BMOC is not to be a surviving corporation in such Transaction)
following such Transaction to consist of persons who were not directors of
Patriot or BMOC, respectively, prior to such Transaction or such
Transaction otherwise will result in such a change in the board of
directors of Patriot or BMOC or such a surviving entity, or (ii) as a
result thereof equity
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securities of Patriot or BMOC (and/or securities of Patriot American
Hospitality Partnership, L.P. or Patriot American Hospitality Operating
Partnership, L.P. convertible into or exchangeable for equity securities of
Patriot or BMOC) would be issued that would entitle the holders to receive
(and/or if converted or exchanged would entitle the holders to receive) a
majority of the dividends payable on the equity securities of Patriot and
BMOC then outstanding taken as a whole or a majority of the assets of
Patriot and BMOC taken as a whole distributable upon a liquidation of
Patriot and BMOC, or (iii) as a result thereof, if Patriot or BMOC is not
to be the surviving corporation in such Transaction, the holders of equity
securities of Patriot or BMOC (and/or securities of Patriot American
Hospitality Partnership, L.P. or Patriot American Hospitality Operating
Partnership, L.P. convertible into or exchangeable for equity securities of
Patriot or BMOC) would not hold equity securities of the surviving entity
in such Transaction entitling them to receive a majority of the dividends
that would be payable on the equity securities of the surviving entity then
outstanding (assuming conversion or exchange of all securities convertible
into or exchangeable for equity securities of the surviving entity) or a
majority of the assets of the surviving entity that would be distributable
upon the liquidation of the surviving entity (assuming conversion or
exchange of all securities convertible into or exchangeable for equity
securities of the surviving entity)."
14. Section 8.17 of Article 8 is hereby deleted in its entirety and replaced
with the following:
"8.17 Wyndham's Accumulated and Current Earnings and Profits. Wyndham
agrees that prior to the Closing Date, it shall cause Coopers & Lybrand LLP
to agree (i) to deliver to Patriot, prior to March 1, 1998, a statement of
accumulated and current E&P of Wyndham (as determined for federal income
tax purposes) at the Effective Time, together with evidence of such
accumulated and current E&P of Wyndham (as determined for federal income
tax purposes) from Coopers & Lybrand LLP in a form reasonably satisfactory
to Patriot, and (ii) that Patriot shall be entitled to rely on such
statement for purposes of preparing and filing its federal, state, local
and foreign tax returns required to be filed by it, determining the amount
of dividends to be paid to stockholders and paying any Taxes owed by it."
15. Article 8 of the Merger Agreement is hereby amended to add a new Section
8.21 reading in its entirety as follows:
"8.21 Management Agreements. If any of the transactions contemplated by
the Purchase and Sale Agreement are consummated prior to the Effective
Time, then the management agreements with Wyndham or one of its Affiliates
with respect to the hotels covered by such transactions shall remain in
full force and effect in accordance with their terms, except that if the
Effective Time of the Merger does not occur on or prior to March 31, 1998,
then (i) the term of each such management agreement shall be amended so
that such term expires on the later to occur of the existing term or 10
years after the date of such amendment and so that Wyndham shall, subject
to attainment of reasonable performance standards, have the right and
option to renew such management agreement for two additional 5 year terms,
(ii) such management agreement shall be amended to include performance-
based incentive fees and reasonable performance standards for exercise of
the renewal options (and Patriot and Wyndham agree to negotiate in good
faith and to use their respective best efforts to cause their subsidiaries
to reach agreement upon such performance-based incentive fees and such
reasonable performance standards), and (iii) such management agreements
shall, to the extent necessary, be amended to provide for (A) a base fee of
3% of gross revenues, and (B) a trade name fee of 1% of rooms revenue."
16. Article 8 of the Merger Agreement is hereby amended to add a new Section
8.22 reading in its entirety as follows:
"8.22 Patriot Recommendation. Patriot and BMOC agree that it shall
constitute a material breach of this Agreement by Patriot and BMOC if
Patriot or its board of directors or BMOC or its board of directors shall
(i) withdraw, modify or amend in any respect adverse to Wyndham its
approval or recommendation of this Agreement or any of the transactions
contemplated herein, (ii) fail to maintain such recommendation in the Proxy
Statement or any amendment thereof or supplement thereto, (iii) recommend
to its stockholders any Patriot Alternative Proposal (as defined below), or
(iv) resolve to do any of the
6
<PAGE>
foregoing. As used herein, the term "Patriot Alternative Proposal" shall
mean any proposed or actual (i) merger, consolidation or similar
transaction involving Patriot or BMOC, (ii) purchase, lease or other
acquisition, or sale, lease or other disposition, directly or indirectly,
by merger, consolidation, share exchange or otherwise, of any assets by or
of Patriot or the Patriot Subsidiaries or BMOC or the BMOC Subsidiaries,
(iii) issue, sale or other disposition of (including by way of merger,
consolidation, share exchange or any similar transaction) securities (or
options, rights or warrants to purchase, or securities convertible into,
such securities), (iv) transaction in which any person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the
Exchange Act), or the right to acquire beneficial ownership, or any "group"
(as such term is defined under the Exchange Act) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership
of, outstanding shares of voting capital stock of Patriot or BMOC, (v)
recapitalization, restructuring, liquidation, dissolution, or other similar
type of transaction with respect to Patriot or any of the Patriot
Subsidiaries or BMOC or any of the BMOC Subsidiaries, (vi) transaction
involving a Change of Control (under clause (i) of the definition thereof),
or (vii) transaction which is similar in form, substance or purpose to any
of the foregoing transactions; if and only if the foregoing (x) would
preclude the consummation of the Merger and the transactions contemplated
hereby upon their respective terms, (y) is conditioned upon the
stockholders of Patriot not approving this Agreement, the New Patriot
Charter Amendment, the Pairing Agreement Amendment, or if required by
applicable law or the rules of the NYSE, the Stock Purchase Agreement, or
the stockholders of BMOC not approving the BMOC Stock Issuance, the Pairing
Agreement Amendment, the BMOC Charter Amendment, or if required by
applicable law or the rules of the NYSE, the Stock Purchase Agreement or
(z) would involve the acquisition of, or the right to use, any Competitive
Brand by Patriot or any of the Patriot Subsidiaries or by BMOC or any of
the BMOC Subsidiaries if the transaction involving the acquisition of, or
right to use, such Competitive Brand would reasonably be viewed, in the
lodging industry, as an alternative to the Merger; provided, however, that
the term "Patriot Alternative Proposal" shall not include the Merger and
the transactions contemplated thereby."
17. Section 9.3(a) of Article 9 of the Merger Agreement is hereby amended by
replacing the words "the Closing Date" as they appear in each location in the
first sentence of Section 9.3(a) with the words "December 16, 1997".
18. Section 9.3(a) of Article 9 of the Merger Agreement is hereby further
amended to delete the second sentence thereof and replace it with the
following:
"Patriot shall have received on December 16, 1997, a certificate, dated
such date, signed on behalf of Wyndham by an authorized officer of Wyndham
to the foregoing effect."
19. Section 9.3(c) of Article 9 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"(c) Absence of Changes. From the date of this Agreement through December
16, 1997, there shall not have occurred any changes concerning Wyndham or
any of the Wyndham Subsidiaries that, when combined with all other changes,
have had or could be reasonably likely to have a Wyndham Material Adverse
Effect, and Patriot shall have received on December 16, 1997 a certificate,
dated such date, signed on behalf of Wyndham by an authorized officer of
Wyndham to the foregoing effect; provided, however, that consummation of
the transaction permitted by Section 8.2(c) shall not, in and of itself, be
deemed a Wyndham Material Adverse Effect."
20. Section 9.3(d) of Article 9 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"(d) Purchase and Sale Agreement. The closing of the transactions
contemplated by the Purchase and Sale Agreement shall have become effective
as to at least those Properties sufficient to satisfy the condition in
Section 4.1(c) of the Purchase and Sale Agreement, except that such
consummation shall not be a condition to Patriot's obligations if Patriot
is in material breach of the terms of the Purchase and Sale Agreement."
7
<PAGE>
21. Section 10.1(c) of Article 10 of the Merger Agreement is hereby amended
by replacing the reference to "December 16, 1997" contained in such section
with "March 31, 1998."
22. Section 10.1(l) of Article 10 of the Merger Agreement is hereby deleted
in its entirety and replaced with the following:
"(l) by Wyndham, in accordance with and subject to Section 5.2(a), if the
Average Closing Price of a Paired Share of Patriot Stock and BMOC Stock is
less than $20.87 (as may be adjusted pursuant to Section 5.2(a)(i));
provided, however, that if the Effective Time of the Merger shall not have
occurred on or before December 31, 1997 and such failure is not caused by a
Wyndham Caused Delay, then the foregoing reference to "$20.87" shall be
changed to "$25.50"; or"
23. Section 10.2 of Article 10 of the Merger Agreement is hereby amended by
deleting the period at the end of the first sentence thereof and adding the
following at the end of the first sentence:
"and Section 8.21."
24. Section 10.3(a)(iv) of Article 10 of the Merger Agreement is hereby
amended by replacing the number "$7,000,000" with the number "$9,000,000".
25. Patriot REIT and Patriot Operating Company hereby waive the condition
contained in clause (B) of Section 9.3(j) of the Merger Agreement and the
conditions contained in Sections 9.1(f) and 9.3(f) of the Merger Agreement
(but not any other conditions) insofar as they may require any amendment,
consent, authorization, modification, approval or waiver by Hospitality
Properties Trust or an Affiliate thereof of the type referred to in clause (B)
of Section 9.3(j).
26. Wyndham hereby represents and warrants that (i) except as to such
breaches of the representations and warranties, individually or in the
aggregate, which could not reasonably be expected to have a Wyndham Material
Adverse Effect (disregarding for such purposes all materiality and knowledge
qualifiers contained in the individual representations and warranties of
Wyndham contained in the Merger Agreement and except as to matters waived or
approved by Patriot), each of the representations and warranties of Wyndham
contained in the Merger Agreement is true and correct as of the date of this
Amendment (or to the extent a representation or warranty is by its terms made
as of another date, then as of such date) as though made on and as of the date
of this Amendment, except to the extent that the taking by Wyndham of any of
the actions permitted by Sections 8.2(b)(ii) and 8.2(b)(vii) (collectively,
the "Wyndham Permitted Actions") or any of the transactions permitted by
Sections 8.2(c) and 8.2(f) (collectively, the "Wyndham Permitted
Transactions") has resulted in any of such representations and warranties
being inaccurate as of the date of this Amendment, in which case, each such
representation and warranty shall for such purpose be deemed to be qualified
by the phrase "except to the extent that the [Wyndham Permitted Action(s)]
[Wyndham Permitted Transaction(s)] has caused this representation and warranty
to be inaccurate as stated as of the date of this Amendment," and a reference
to the applicable Wyndham Permitted Action or Wyndham Permitted Action(s)
and/or Wyndham Permitted Transaction or Wyndham Permitted Transactions shall
be deemed to be substituted for the phrases "[Wyndham Permitted Action(s)]"
and "[Wyndham Permitted Transaction(s)]" therein, and (ii) from April 14, 1997
through the date of this Amendment, there has not occurred any changes
concerning Wyndham or any of the Wyndham Subsidiaries (other than changes
waived or approved by Patriot) that, when combined with all other changes,
have had or could be reasonably likely to have a Wyndham Material Adverse
Effect; provided, however, that consummation of the transaction permitted by
Section 8.2(c) shall not, in and of itself, be deemed a Wyndham Material
Adverse Effect.
27. All adjustments necessitated by stock splits, stock dividends,
combinations of shares, mergers, business combinations and other similar
events occurring prior to the date of this Amendment have been made and are
reflected in the foregoing provisions of this Amendment, including without
limitation paragraphs 1, 6 and 22 of this Amendment.
8
<PAGE>
28. Except as expressly provided herein, the Merger Agreement shall remain
in full force and effect.
29. Nothing contained in this Amendment shall affect the rights and
obligations of any of the parties to the Patriot Ratification Agreement or the
BMOC Ratification Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
In Witness Whereof, the parties have executed this Amendment and caused the
same to be duly delivered on their behalf on the day and year first written
above.
Attest: Patriot American Hospitality, Inc.
By: /s/ Shelby P. Powell By: /s/ Rex E. Stewart
--------------------------------- ---------------------------------
Name: Shelby P. Powell Name: Rex E. Stewart
Title: Executive Vice President
and Chief Financial Officer
Attest: Patriot American Hospitality
Operating Company
By: /s/ Shelby P. Powell By: /s/ Rex E. Stewart
--------------------------------- ---------------------------------
Name: Shelby P. Powell Name: Rex E. Stewart
Title: Executive Vice President
and Chief Financial Officer
Attest:
Wyndham Hotel Corporation
By: /s/ Carla S. Moreland By: /s/ Anne L. Raymond
--------------------------------- ---------------------------------
Name: Carla S. Moreland Name: Anne L. Raymond
Title: Executive Vice President
and Chief Financial Officer
10
<PAGE>
ANNEX S-B
<PAGE>
ANNEX S-B
[LETTERHEAD OF SMITH BARNEY APPEARS HERE]
December 10, 1997
The Board of Directors
Wyndham Hotel Corporation
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Wyndham Hotel Corporation
("Wyndham") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of April 14, 1997, by and between Patriot American Hospitality,
Inc. ("Patriot") and Wyndham, as amended through the date hereof, by and among
Patriot, Patriot American Hospitality Operating Company ("Patriot Opco") and
Wyndham (the "Merger Agreement"). As more fully described in the Merger
Agreement, (i) Wyndham will be merged with and into Patriot (the "Merger") and
(ii) each outstanding share of the common stock, par value $0.01 per share, of
Wyndham (the "Wyndham Common Stock") will be converted, subject to the cash
election described below, into the right to receive 1.372 shares (subject to
adjustment as described below, the "Exchange Ratio") of the (x) common stock,
par value $0.01 per share, of Patriot (the "Patriot Common Stock") and (y) the
common stock, par value $0.01 per share, of Patriot Opco (the "Patriot Opco
Common Stock"), which shares of Patriot Common Stock and Patriot Opco Common
Stock will be paired and transferable and traded only in combination as a single
unit (the "Paired Shares"); provided, that (A) in the event that the Merger is
consummated on or prior to December 31, 1997, if the average per share closing
price of a Paired Share as reported on The New York Stock Exchange (the "NYSE")
over the 20 trading days immediately preceding the fifth business day prior to
the date on which the vote on the proposal to approve the Merger Agreement
occurs at the meeting of Wyndham's stockholders (the "Average Closing Price") is
less than $21.86 per share but greater than or equal to $20.87 per share, then
each outstanding share of Wyndham Common Stock will be converted into the right
to receive that number of Paired Shares equal to $30.00 divided by the Average
Closing Price, subject to further adjustment if the Average Closing Price is
less than $20.87 per share, in which event each outstanding share of Wyndham
Common Stock will be converted into the right to receive 1.438 Paired Shares and
(B) in the event that the Merger is not consummated on or prior to December 31,
1997 and such failure is not a result of a Wyndham Caused Delay (as defined in
the Merger Agreement), if the Average Closing Price is less than $27.50 per
share but greater than or equal to $25.50 per share, then each outstanding share
of Wyndham Common Stock will be converted into the right to receive that number
of Paired Shares equal to $37.73 divided by the Average Closing Price, subject
to further adjustment if the Average Closing Price is less than $25.50 per
share, in which event each outstanding share of Wyndham Common Stock will be
converted into the right to receive 1.48 Paired Shares (the total number of
Paired Shares into which shares of Wyndham Common Stock will be so converted in
the Merger, the "Stock Consideration"). Pursuant to the terms of the Merger
Agreement and subject to certain allocation and proration procedures specified
therein (as to which we express no opinion), holders of Wyndham Common Stock may
elect to convert all or a portion of their shares of Wyndham Common Stock into
the right to receive cash in an amount equal to $42.80 per share, subject to a
maximum cash amount in respect of all such cash elections (together with any
cash election made by CF Securities, L.P. in connection with certain related
transactions contemplated by the Merger Agreement) of $100 million in the
aggregate (the total cash amount into which shares of Wyndham Common Stock will
be so converted in the Merger, the "Cash Consideration" and, together with the
Stock Consideration, the "Merger Consideration").
1
SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013 212-816-6000
<PAGE>
The Board of Directors
Wyndham Hotel Corporation
December 10, 1997
Page 2
The Merger Agreement also provides that additional cash consideration will be
payable in the Merger to holders of Wyndham Common Stock if the Merger is not
consummated on or prior to January 5, 1998 and such failure is not a result of
a Wyndham Caused Delay (as defined in the Merger Agreement) and that holders of
Wyndham Common Stock will also be entitled to receive the economic benefit of
any dividends declared in respect of Patriot Common Stock or Patriot Opco Common
Stock for which the record date is on or after November 26, 1997 but prior to
the effective time of the Merger, in each case as more fully specified in the
Merger Agreement.
It is our understanding that, as contemplated by the Merger Agreement and more
fully described in an Omnibus Purchase and Sale Agreement entered into
contemporaneously with the Merger Agreement by and among Patriot and certain
entities owned or controlled by the Trammell Crow family and/or various
descendants thereof (the "Crow Entities"), certain real estate and related
assets will be sold by the Crow Entities to certain affiliates of Patriot prior
to the consummation of the Merger (the "Asset Sale" and, such real estate and
related assets, the "Real Estate Assets").
In arriving at our opinion, we reviewed the Merger Agreement and certain related
documents and held discussions with certain senior officers, directors and other
representatives and advisors of Wyndham and certain senior officers and other
representatives and advisors of Patriot concerning the businesses, operations
and prospects of Wyndham and Patriot. We examined certain publicly available
business and financial information relating to Wyndham and Patriot as well as
certain financial forecasts and other information and data for Wyndham and
Patriot which were provided to or otherwise discussed with us by the respective
managements of Wyndham and Patriot, including information relating to certain
strategic implications and operational benefits anticipated to result from the
Merger. We reviewed the financial terms of the Merger as set forth in the Merger
Agreement in relation to, among other things: current and historical market
prices and trading volumes of Wyndham Common Stock and Patriot Common Stock; the
historical and projected earnings and other operating data of Wyndham and
Patriot; and the capitalization and financial condition of Wyndham and Patriot.
We considered, to the extent publicly available, the financial terms of other
transactions recently effected which we considered relevant in evaluating the
Merger and analyzed certain financial, stock market and other publicly available
information relating to the businesses of other companies whose operations we
considered relevant in evaluating those of Wyndham and Patriot. We also
evaluated the potential pro forma financial impact of the Merger on Patriot,
after giving effect to the Asset Sale and certain of Patriot's proposed
acquisitions which have been publicly announced (excluding, with your consent,
Patriot's proposed acquisition of Interstate Hotels Corporation). In connection
with our engagement, we were requested to approach on a limited basis, and held
discussions with, certain third parties to solicit indications of interest in a
possible acquisition of Wyndham. In addition to the foregoing, we conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the managements of Wyndham and Patriot that such forecasts and other
information and data were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the managements of Wyndham and
Patriot as to the future financial performance of Wyndham and Patriot and the
strategic implications and operational benefits anticipated
2
<PAGE>
The Board of Directors
Wyndham Hotel Corporation
December 10, 1997
Page 3
to result from the Merger. We have assumed, with your consent, that the Merger
will be treated as a tax-free reorganization for federal income tax purposes. We
also have assumed that the Asset Sale will occur prior to the Merger, and that
the Merger and the transactions contemplated thereby (including, without
limitation, the Asset Sale) will not adversely affect the REIT status of the
Surviving Corporation. We are not expressing any opinion as to what the value of
the Paired Shares actually will be when issued to Wyndham stockholders pursuant
to the Merger or the price at which the Paired Shares will trade or otherwise be
transferable subsequent to the Merger. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Wyndham, Patriot or the Real Estate Assets nor have we made any
physical inspection of the properties or assets of Wyndham, Patriot or the Real
Estate Assets. Our opinion is necessarily based upon information available to
us, and financial, stock market and other conditions and circumstances existing
and disclosed to us, as of the date hereof.
Smith Barney has been engaged to render financial advisory services to Wyndham
in connection with the proposed Merger and will receive a fee for such services,
a significant portion of which is contingent upon the consummation of the
Merger. In the ordinary course of our business, we and our affiliates may
actively trade or hold the securities of Wyndham and Patriot for our own account
or for the account of our customers and, accordingly, may at any time hold a
long or short position in such securities. We have in the past provided
investment banking services to Wyndham unrelated to the proposed Merger, for
which services we have received compensation. In addition, we and our affiliates
(including Travelers Group Inc. and its affiliates) may maintain relationships
with Wyndham, Patriot and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Wyndham in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Merger Consideration is fair, from a
financial point of view, to the holders of Wyndham Common Stock.
Very truly yours,
/s/ Smith Barney Inc.
SMITH BARNEY INC.
3
<PAGE>
ANNEX S-C
<PAGE>
REAL ESTATE INVESTMENT BANKING
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-4020
212 713-7949 Fax
Terrence E. Fancher
Managing Director
[LOGO OF PAINEWEBBER APPEARS HERE]
December 2, 1997
Board of Directors
Wyndham Hotel Corporation
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75207
Ladies and Gentlemen:
We understand that Wyndham Hotel Corporation, a Delaware corporation
("Wyndham"), is a party to that certain Agreement and Plan of Merger dated as
of April 14, 1997 (as amended, the "Wyndham Merger Agreement") with Patriot
American Hospitality, Inc., a Virginia corporation ("Old Patriot"), pursuant
to which Wyndham has agreed to merge with and into Patriot American
Hospitality, Inc., a Delaware corporation and successor by merger to Old
Patriot ("Patriot"), with Patriot surviving (the "Wyndham Merger"). We
understand that Patriot and Patriot American Hospitality Operating Company, a
Delaware corporation ("Patriot Operating Company", and together with Patriot,
the "Patriot Companies"), are parties to that certain Agreement and Plan of
Merger dated as of December 2, 1997 (the "Interstate Merger Agreement") with
Interstate Hotels Company ("Interstate"), pursuant to which Interstate has
agreed to merge with and into Patriot, with Patriot surviving (the "Proposed
Interstate Merger"). We understand that pursuant to the Interstate Merger
Agreement, upon consummation of the Proposed Interstate Merger, approximately
sixty percent of the issued and outstanding shares of common stock of
Interstate will be converted into the right to receive shares (the "Paired
Shares") of common stock of Patriot, which are paired and trade as a unit with
shares of the Patriot Operating Company, in accordance with the exchange ratio
(the "Exchange Ratio") set forth in the Interstate Merger Agreement, and
approximately forty percent of the issued and outstanding shares of common
stock of Interstate will be converted into the right to receive $37.50 per
share in cash. All capitalized terms not otherwise defined herein shall have
the meanings set forth in the Interstate Merger Agreement.
We have rendered an opinion to the Boards of Directors of the Patriot
Companies as to the fairness, from a financial point of view, of the merger
consideration in the Wyndham Merger to the Patriot Companies' shareholders. We
understand that you have received the opinion of Smith Barney Inc. as to the
fairness, from a financial point of view, of the Merger Consideration in the
Wyndham Merger to the holders of Wyndham common stock, and we understand that
a Special Committee of the Board of Directors of Wyndham has received the
opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated as to the
fairness, from a financial point of view, of the Merger Consideration in the
Wyndham Merger to holders of Wyndham common stock (other than CF Securities,
L.P.). We assume that you have independently determined that the terms of the
Wyndham Merger are fair to holders of Wyndham Common Stock and we are not
opining as to the fairness, from a financial point of view or otherwise, of
the Wyndham Merger to Wyndham or to holders of Wyndham common stock.
We have rendered our opinion dated December 2, 1997 to the Boards of
Directors of the Patriot Companies as to the fairness, from a financial point
of view, of the merger consideration in the Proposed Interstate Merger to the
Patriot Companies' shareholders. A copy of such opinion is attached hereto. In
rendering such opinion we assumed that the Wyndham Merger was consummated in
accordance with the terms of the Wyndham Merger Agreement prior to the
effectiveness of the Proposed Interstate Merger. Accordingly, we confirm to
you that our opinion as to the fairness, from a financial point of view, of
the merger consideration in the Proposed Interstate Merger to the Patriot
Companies' shareholders includes the shareholders of the Patriot Companies who
will become such as a result of the Wyndham Merger and you may rely on the
attached opinion to such extent as if it were addressed directly to you.
<PAGE>
PAINEWEBBER
Board of Directors
Page 2
December 2, 1997
We have not addressed the business decision of the Board of Directors of
Wyndham to engage in the Wyndham Merger or to consent to the Patriot
Companies' participation in the Proposed Interstate Merger, or the relative
merits of the Wyndham Merger, the Proposed Interstate Merger and any other
transactions or business strategies discussed by the Board of Directors of
Wyndham as alternatives to the Wyndham Merger, and this letter does not
constitute a recommendation to any of Wyndham's shareholders as to how any
such shareholders should vote on the Wyndham Merger. No opinion is expressed
herein as to the fairness of the Wyndham Merger to Wyndham or to shareholders
of Wyndham from a financial point of view or otherwise. As indicated above, we
have assumed that you have independently determined that the terms of the
Wyndham Merger are fair to holders of Wyndham Common Stock. Furthermore, we
have not addressed the business decision of the Boards of Directors of the
Patriot Companies to engage in the Proposed Interstate Merger or the relative
merits of the Proposed Interstate Merger and any other transactions or
business strategies discussed by the respective Boards of Directors of the
Patriot Companies as alternatives to the Proposed Interstate Merger, and this
letter does not constitute a recommendation to any of the Patriot Companies'
shareholders as to how any such shareholders, including those who will become
such as a result of the Wyndham Merger, should vote on the Proposed Interstate
Merger. No opinion is expressed herein as to the price or trading range at
which Wyndham's or the Patriot Companies' stock may trade at any time.
This opinion has been prepared for your use and shall not be reproduced,
summarized, described or referred to, or given to any other person or
otherwise made public, without the prior written consent of PaineWebber
Incorporated; provided, however, that this opinion may be reproduced in full
in a proxy statement/prospectus supplement relating to the Wyndham Merger but
any reference to or summary of this opinion is subject to our approval, which
shall not be unreasonably withheld.
We bring to your attention that, as you are aware, PaineWebber Incorporated
will receive a fee from Wyndham for rendering this opinion. Furthermore, as
indicated above, PaineWebber Incorporated is currently acting as financial
advisor to the Patriot Companies and has rendered opinions to the Patriot
Companies with regard to the Wyndham Merger and the Proposed Interstate
Merger, and PaineWebber Incorporated will receive a fee from the Patriot
Companies for rendering such opinions to the Patriot Companies and will
receive additional fees from the Patriot Companies upon consummation of the
Wyndham Merger and the Proposed Interstate Merger. PaineWebber Incorporated
has provided financial advisory services and investment banking services to
the Patriot Companies (including acting as an underwriter for the Patriot
Companies and Old Patriot), has acted as a lender to Old Patriot, and has
acted and continues to act as a lender to the Patriot Companies and certain of
its affiliates or related entities. PaineWebber may provide financial advisory
and investment banking services to, may act as an underwriter or placement
agent for, and may act as a lender to, the Patriot Companies in the future. In
the ordinary course of our business, we trade the equity and debt securities
of Wyndham, the Patriot Companies and Interstate for our own account and for
the accounts of our customers and, accordingly, we may at any time hold short
or long positions in such securities. In addition to our regular trading
activities, we currently own approximately 1.0 million Paired Shares which we
purchased from the Patriot Companies on November 13, 1997. As you are also
aware, an affiliate of ours has recently acquired certain land in San Mateo,
California from Patriot and is leasing the land back to a subsidiary of
Patriot.
Very truly yours,
PaineWebber Incorporated
By: /s/ Terrence E. Fancher
------------------------------
<PAGE>
REAL ESTATE INVESTMENT BANKING
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
212 713-4020
212 713-7949 Fax
Terrence E. Fancher
Managing Director
[LOGO OF PAINEWEBBER APPEARS HERE]
December 2, 1997
Board of Directors
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Board of Directors
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
We understand that Patriot American Hospitality, Inc., a Delaware corporation
("Patriot"), and Patriot American Hospitality Operating Company, a Delaware
corporation (the "Operating Company", and together with Patriot, the
"Companies"), are parties to that certain Agreement and Plan of Merger dated as
of December 2, 1997 (the "Merger Agreement") with Interstate Hotels Company
("Interstate"), pursuant to which Interstate has agreed to merge with and into
Patriot, with Patriot surviving (the "Proposed Merger"). We understand that
Patriot, as successor by merger to Patriot American Hospitality, Inc., a
Virginia corporation ("Old Patriot"), is a party to that certain Agreement and
Plan of Merger dated as of April 14, 1997 (as amended, the "Wyndham Merger
Agreement") with Wyndham Hotel Corporation, a Delaware corporation ("Wyndham"),
pursuant to which Wyndham has agreed to merge with and into Patriot, with
Patriot surviving (the "Wyndham Merger"). We understand that pursuant to the
Merger Agreement, upon consummation of the Proposed Merger, approximately sixty
percent of the issued and outstanding shares of common stock of Interstate will
be converted into the right to receive shares (the "Paired Shares") of common
stock of Patriot, which are paired and trade as a unit with shares of the
Operating Company, in accordance with the exchange ratio (the "Exchange Ratio")
set forth in the Merger Agreement, and approximately forty percent of the
issued and outstanding shares of common stock of Interstate will be converted
into the right to receive $37.50 per share in cash. All capitalized terms not
otherwise defined herein shall have the meanings set forth in the Merger
Agreement.
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration to shareholders of the Companies.
We understand that the Proposed Merger will be accounted for under the
purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Old Patriot's Annual Report, Forms 10-K and related
financial information for the fiscal years ended December 31, 1995 and
December 31, 1996 and the Companies' Form 10-Q and the related unaudited
financial information for the quarterly period ended September 30, 1997;
(2) Reviewed the joint proxy statement and prospectus on Form S-4 dated
May 30, 1997 regarding the merger of Old Patriot with and into California
Jockey Club;
(3) Reviewed the joint proxy statement and prospectus on Form S-4 dated
November 10, 1997 regarding the Wyndham Merger and the transactions
contemplated thereby;
(4) Reviewed Wyndham's Registration Statements related to the concurrent
initial public offering of Wyndham common stock and Wyndham Senior
Subordinated Notes in May 1996, Form 10-K and the related financial
information for the fiscal year ended December 31, 1996 and Form 10-Q and
the related unaudited financial information for the quarterly period ended
September 30, 1997;
<PAGE>
PAINEWEBBER
Boards of Directors
Page 2
December 2, 1997
(5) Reviewed Interstate's Registration Statement dated June 19, 1996
related to the initial public offering of Interstate common stock, Form 10-
K and the related financial information for the fiscal year ended December
31, 1996 and Form 10-Q and the related unaudited financial information for
the quarterly period ended September 30, 1997;
(6) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Companies
and Interstate, furnished to us by the Companies and Interstate,
respectively, with certain information and forecasts supplied by the
Companies having assumed completion of the Wyndham Merger and related
transactions, the acquisition of certain assets owned by partnerships
affiliated with members of the Trammell Crow family to be acquired by
certain operating partnerships of the Companies (the "Crow Assets
Acquisition") and certain other acquisitions;
(7) Conducted discussions with members of senior management of the
Companies and Interstate, concerning their respective businesses and
prospects;
(8) Compared the results of operations of Interstate with those of
certain companies which we deemed to be reasonably similar to Interstate;
(9) Compared the proposed financial terms of the transactions
contemplated by the Merger Agreement with the actual or proposed financial
terms of certain other mergers and acquisitions which we deemed to be
relevant;
(10) Considered the pro forma effect of the Proposed Merger on the
Companies' funds from operations and certain other financial measures,
taking into account the Wyndham Merger and related transactions, the Crow
Assets Acquisition and certain other acquisitions;
(11) Reviewed the financial terms of the Merger Agreement;
(12) Reviewed the historical market prices of Old Patriot common stock,
the Paired Shares and Interstate common stock and compared them to each
other and to certain indices we deemed relevant; and
(13) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated or
otherwise made available to us by or on behalf of the Companies, Wyndham and
Interstate, and we have not assumed any responsibility to independently verify
such information, conduct a physical inspection of the properties and
facilities of the Companies, Wyndham or Interstate or undertake an independent
appraisal of the assets of the Companies, Wyndham or Interstate. With respect
to the financial forecasts examined by us, we have assumed that they were
reasonably prepared on bases reflecting the best currently available estimates
and good faith judgments of the respective managements of the Companies and
Interstate as to the future performance of the Companies and Interstate,
respectively, and their respective assets, including with respect to the
Companies, assets to be acquired in the Wyndham Merger, the Crow Assets
Acquisition and certain other acquisitions. At the Companies' direction, we
have assumed that the Wyndham Merger will be consummated in accordance with the
terms of the Wyndham Merger Agreement prior to the effectiveness of the
Proposed Merger, that Patriot is not and, after the Proposed Merger, will not
be, subject to Section 269B(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), that Patriot will qualify to be treated as a "real estate
investment trust" within the meaning of the Code before and after giving effect
to the Proposed Merger, that the representations and warranties of each of the
parties to the Merger Agreement were true and correct as of the date of the
Merger Agreement or as of such other date or dates specified therein and will
be true and correct at the closing of the Merger to the extent required to be
true and correct on such date under the terms of the Merger Agreement, and that
the Merger will be treated as a tax-free reorganization for federal income tax
purposes. We have further assumed that the Proposed Merger will be consummated
in accordance with the terms described in the Merger Agreement. With your
consent, our analyses assumed the conversion or exchange for Paired Shares of
all equity securities convertible or exchangeable for Paired Shares, including
OP Units, but excluding outstanding stock options. Our opinion is based upon
regulatory, economic,
<PAGE>
PAINEWEBBER
Boards of Directors
Page 3
December 2, 1997
monetary and market conditions existing on the date hereof. We have assumed,
with your consent, that all material assets and liabilities (contingent or
otherwise, known or unknown) of the Companies, Wyndham and Interstate are as
set forth in their respective consolidated financial statements.
This opinion does not address the business decision of the Boards of
Directors of the Companies to engage in the Proposed Merger or the relative
merits of the Proposed Merger and any other transactions or business
strategies discussed by the respective Boards of Directors of the Companies as
alternatives to the Proposed Merger, or constitute a recommendation to any of
the Companies' shareholders as to how any such shareholders should vote on the
Proposed Merger. No opinion is expressed herein as to the price or trading
range at which the Companies' stock may trade at any time.
This opinion has been prepared for your use and shall not be reproduced,
summarized, described or referred to, or given to any other person or
otherwise made public, without the prior written consent of PaineWebber
Incorporated; provided, however, that this opinion may be reproduced in full
in a proxy statement/prospectus relating to the Proposed Merger and a proxy
statement/prospectus supplement relating to the Wyndham Merger, but any
reference to or summary of this opinion is subject to our approval, which
shall not be unreasonably withheld.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration is fair to shareholders of the
Companies from a financial point of view.
We bring to your attention that, as you are aware, PaineWebber Incorporated
is currently acting as financial advisor to the Companies and will receive a
fee for rendering this opinion and will receive an additional fee upon
consummation of the Proposed Merger. In addition, as you are aware,
PaineWebber Incorporated is rendering an opinion to the Board of Directors of
Wyndham confirming that for the purposes of this opinion the shareholders of
the Companies includes those shareholders of the Companies who will become
such as a result of the Wyndham Merger, and PaineWebber Incorporated will
receive a fee from Wyndham for rendering such opinion. PaineWebber
Incorporated has provided financial advisory services and investment banking
services to the Companies (including acting as an underwriter for the
Companies and Old Patriot), has acted as a lender to Old Patriot, and has
acted and continues to act as a lender to the Companies and certain of its
affiliates or related entities. PaineWebber may provide financial advisory and
investment banking services to, may act as an underwriter or placement agent
for, and may act as a lender to, the Companies in the future. In the ordinary
course of our business, we trade the equity and debt securities of the
Companies, Wyndham and Interstate for our own account and for the accounts of
our customers and, accordingly, we may at any time hold short or long
positions in such securities. In addition to our regular trading activities,
we currently own approximately 1.0 million Paired Shares which we purchased
from the Companies on November 13, 1997. As you are also aware, an affiliate
of ours has recently acquired certain land in San Mateo, California from
Patriot and is leasing the land back to a subsidiary of Patriot.
Very truly yours,
PaineWebber Incorporated
By: /s/ Terrence E. Fancher
--------------------------------
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC. PATRIOT AMERICAN HOSPITALITY
3030 LBJ FREEWAY OPERATING COMPANY
SUITE 1500 3030 LBJ FREEWAY
DALLAS, TX 75234 SUITE 1500
DALLAS, TX 75234
November 10, 1997
Dear Stockholder:
You are cordially invited to attend the Special Meetings of Stockholders of
Patriot American Hospitality, Inc. ("Patriot REIT") and Patriot American
Hospitality Operating Company ("Patriot Operating Company") to be held on
December 12, 1997, at the Wyndham Anatole Hotel located at 2201 Stemmons
Freeway, Dallas, Texas. At the Special Meetings, you will be asked to consider
and vote upon three related proposals (the "Proposals"): (i) a proposal to
approve the Agreement and Plan of Merger, dated as of April 14, 1997, as
amended on November 3, 1997, between Patriot REIT, Patriot Operating Company
and Wyndham (the "Merger Agreement"), and the transactions contemplated
thereby, including, without limitation, the merger of Wyndham with and into
Patriot REIT (the "Merger") and the related purchase by Patriot REIT of
Wyndham common stock from Wyndham's principal stockholder (the "Stock
Purchase"); (ii) a proposal to adopt an amendment to the Pairing Agreement,
dated February 17, 1983, as amended, between Patriot REIT and Patriot
Operating Company; and (iii) proposals to approve the amendment and
restatement of the Certificates of Incorporation of Patriot REIT and Patriot
Operating Company. The Patriot REIT Special Meeting will be held at 9:30 a.m.
local time and the Patriot Operating Company Special Meeting will be held at
10:30 a.m. local time.
Pursuant to the Merger, Wyndham will merge with and into Patriot REIT with
Patriot REIT being the surviving company. In connection with the Merger, each
share of Wyndham common stock generally will be converted into 1.372 paired
shares of Patriot REIT common stock and Patriot Operating Company common
stock, subject to adjustment under certain circumstances based on the trading
price of the paired shares (the "Exchange Ratio"). Pursuant to the Stock
Purchase, the principal stockholder of Wyndham will generally receive paired
shares of Patriot REIT common stock and Patriot Operating Company common stock
(and in order to satisfy certain REIT qualification requirements, shares of
unpaired preferred stock of Patriot REIT) at the Exchange Ratio. The Merger
and the Stock Purchase also permit Wyndham stockholders to elect to receive up
to a maximum of $100 million in cash in lieu of paired shares.
Your paired shares of Patriot REIT common stock and Patriot Operating
Company common stock will remain outstanding after the Merger and will
represent, without any action on your part, the same number of paired shares
of Patriot REIT common stock and Patriot Operating Company common stock held
by you immediately prior to the Merger. While you will own the same number of
paired shares of Patriot REIT common stock and Patriot Operating Company
common stock following the Merger, you will own a lesser percentage of the
total number of paired shares than you owned before the Merger because of the
issuance of paired shares to Wyndham's stockholders in connection with the
Merger and the related Stock Purchase.
The Boards of Directors of Patriot REIT and Patriot Operating Company
believe that the Merger Agreement and the transactions contemplated thereby
are fair to, and in the best interests of, Patriot REIT, Patriot Operating
Company and their respective stockholders. In connection with the Merger, the
investment banking firm of PaineWebber Incorporated has issued its opinion to
the Boards of Directors of Patriot REIT and Patriot Operating Company to the
effect that, as of the date of such opinion, and subject to the considerations
and limitations set forth in such opinion, the merger consideration was fair
from a financial point of view to the stockholders of Patriot REIT and Patriot
Operating Company. A copy of this opinion is attached as Annex H to the
accompanying Joint Proxy Statement/Prospectus. Each of the Boards of Directors
of Patriot REIT and Patriot
<PAGE>
Operating Company has unanimously approved the Merger Agreement and the
transactions contemplated thereby and unanimously recommends that you vote in
favor of each of the proposals to be presented at the Special Meetings.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger and the related transactions, the
reasons for each Board of Directors' recommendations of the Merger Agreement
and the transactions contemplated by the Merger Agreement and certain
additional information, including, without limitation, the information set
forth under the heading "Risk Factors," which describes, among other things,
potential adverse effects to stockholders of Patriot REIT and Patriot
Operating Company as a result of the Merger and the related transactions. We
urge you to carefully consider all of the information in the Joint Proxy
Statement/Prospectus.
IT IS IMPORTANT THAT YOUR SHARES OF PATRIOT REIT COMMON STOCK AND PATRIOT
OPERATING COMPANY COMMON STOCK BE REPRESENTED AT THE SPECIAL MEETINGS,
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. THEREFORE, PLEASE COMPLETE, SIGN,
DATE AND RETURN YOUR YELLOW PROXY CARD AS SOON AS POSSIBLE, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETINGS. ALL STOCKHOLDERS ARE URGED TO VOTE TO
APPROVE THE PROPOSALS BY COMPLETING, SIGNING, DATING AND RETURNING THE
ENCLOSED YELLOW PROXY CARD.
We look forward to the successful combination of Patriot and Wyndham and to
your continued support as a stockholder.
Sincerely,
LOGO
Paul A. Nussbaum
Chairman and Chief Executive Officer
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
3030 LBJ FREEWAY
SUITE 1500
DALLAS, TX 75234
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997
----------------
To the Stockholders of Patriot American Hospitality, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Patriot
American Hospitality, Inc., a Delaware corporation ("Patriot REIT"), will be
held on December 12, 1997, at 9:30 a.m. local time, at the Wyndham Anatole
Hotel located at 2201 Stemmons Freeway, Dallas, Texas (the "Patriot REIT
Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of April 14, 1997, between Patriot American
Hospitality, Inc., a Virginia corporation ("Old Patriot REIT") and
predecessor by merger to Patriot REIT, and Wyndham Hotel Corporation, a
Delaware corporation ("Wyndham"), as ratified by Patriot REIT and Patriot
American Hospitality Operating Company, a Delaware corporation ("Patriot
Operating Company"), pursuant to Ratification Agreements dated as of July
24, 1997 (the "Ratification Agreements") and as amended on November 3, 1997
by Patriot REIT, Patriot Operating Company and Wyndham (collectively, the
"Merger Agreement"), and the transactions contemplated thereby, including,
without limitation, (i) the merger of Wyndham with and into Patriot REIT
(the "Merger"), and (ii) the related purchase by Patriot REIT of up to
9,447,745 shares of Wyndham common stock owned by CF Securities, L.P. ("CF
Securities"), the principal stockholder of Wyndham, pursuant to a Stock
Purchase Agreement dated as of April 14, 1997 (the "Stock Purchase
Agreement") between Old Patriot REIT and CF Securities.
Pursuant to the Merger Agreement, Wyndham will merge with and into
Patriot REIT, with Patriot REIT being the surviving company. In the Merger,
each share of Wyndham common stock generally will be converted into 1.372
paired shares (the "Paired Shares") of Patriot REIT common stock and
Patriot Operating Company common stock; provided, however, that if the
average closing price of a Paired Share over the 20 trading days
immediately preceding the fifth business day prior to the special meeting
of the stockholders of Wyndham (the "Patriot Average Closing Price") is
less than $21.86 but greater than or equal to $20.87, each share of Wyndham
common stock will be converted into the number of Paired Shares equal to
$30.00 divided by the Patriot Average Closing Price, and, in the event that
the Patriot Average Closing Price is less than $20.87, each share of
Wyndham common stock will be converted into 1.438 Paired Shares (the
"Exchange Ratio"), unless Wyndham exercises its right to terminate the
Merger Agreement in such event. On November 3, 1997, the closing price of a
Paired Share as reported on the New York Stock Exchange was $31 1/2. The
closing price of Wyndham common stock as reported on the New York Stock
Exchange on the same date was $43 1/16.
Pursuant to the Stock Purchase Agreement, Patriot REIT will purchase the
shares of Wyndham common stock owned by CF Securities in exchange for a
combination of Paired Shares at the Exchange Ratio and shares of unpaired
preferred stock of Patriot REIT at the Exchange Ratio, subject to certain
REIT qualification limitations that could, under certain limited
circumstances, result in the payment of cash in lieu of unpaired preferred
stock.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
to elect (a "Cash Election") to receive cash ("Cash Consideration") in the
Merger (and CF Securities has an equivalent right under the Stock Purchase
Agreement) in an amount per share equal to the Exchange Ratio multiplied by
the average closing price of a Paired Share over the five trading days
immediately preceding the closing of the Merger
<PAGE>
up to a maximum of $100 million. CF Securities has delivered to Patriot
REIT a Cash Election pursuant to which it has elected to receive Cash
Consideration for all of its shares of Wyndham common stock. Thus, Patriot
REIT will pay $100 million of cash to Wyndham stockholders in connection
with the Merger.
Copies of the Merger Agreement (together with its amendment), the
Ratification Agreements and the Stock Purchase Agreement are attached as
Annexes A, B, C and D, respectively, to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To consider and vote upon a proposal to amend the Pairing Agreement,
dated February 17, 1983, as amended (the "Pairing Agreement"), between
Patriot REIT and Patriot Operating Company. A copy of the proposed
amendment to the Pairing Agreement is attached as Annex E to the Joint
Proxy Statement/Prospectus accompanying this Notice.
3. To consider and vote upon a proposal to amend and restate the
Certificate of Incorporation of Patriot REIT. A copy of the proposed
Amended and Restated Certificate of Incorporation of Patriot REIT is
attached as Annex F to the Joint Proxy Statement/Prospectus accompanying
this Notice.
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of shares of Patriot REIT common stock at the close of
business on November 12, 1997 are entitled to notice of, and to vote at, the
Patriot REIT Special Meeting. A list of such stockholders will be available
for inspection at the offices of Patriot REIT at least ten days prior to the
Patriot REIT Special Meeting. The Merger Agreement and other related matters
are more fully described in the accompanying Joint Proxy Statement/Prospectus,
and the Annexes thereto.
By Order of the Board of Directors
of Patriot American Hospitality,
Inc.
Rex E. Stewart
Secretary
November 10, 1997
Proxies are being separately solicited by the Boards of Directors of Patriot
REIT and Patriot Operating Company. To ensure representation of your stock at
the Patriot REIT Special Meeting, you must mark, sign and return the enclosed
YELLOW proxy card.
- -------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE PATRIOT REIT SPECIAL MEETING, PLEASE
COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED YELLOW PROXY CARD IN THE
ENCLOSED SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE
PATRIOT REIT SPECIAL MEETING, YOU MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH
YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
3030 LBJ FREEWAY
SUITE 1500
DALLAS, TX 75234
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997
----------------
To the Stockholders of Patriot American Hospitality Operating Company:
Notice is hereby given that a Special Meeting of Stockholders of Patriot
American Hospitality Operating Company, a Delaware corporation ("Patriot
Operating Company"), will be held on December 12, 1997, at 10:30 a.m. local
time, at the Wyndham Anatole Hotel located at 2201 Stemmons Freeway, Dallas,
Texas (the "Patriot Operating Company Special Meeting"), for the following
purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of April 14, 1997, between Patriot American
Hospitality, Inc., a Virginia corporation ("Old Patriot REIT") and
predecessor by merger to Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot REIT"), and Wyndham Hotel Corporation ("Wyndham"), as
ratified by Patriot REIT and Patriot Operating Company pursuant to
Ratification Agreements dated as of July 24, 1997 (the "Ratification
Agreements") and as amended on November 3, 1997 by Patriot REIT, Patriot
Operating Company and Wyndham (collectively, the "Merger Agreement"), and
the transactions contemplated thereby, including, without limitation, (i)
the merger of Wyndham with and into Patriot REIT (the "Merger"), and (ii)
the related purchase by Patriot REIT of up to 9,447,745 shares of Wyndham
common stock owned by CF Securities, L.P. ("CF Securities"), the principal
stockholder of Wyndham, pursuant to a Stock Purchase Agreement dated as of
April 14, 1997 (the "Stock Purchase Agreement") between Old Patriot REIT
and CF Securities.
Pursuant to the Merger Agreement, Wyndham will merge with and into
Patriot REIT, with Patriot REIT being the surviving company. Following the
Merger, Patriot REIT will continue to be referred to as "Patriot American
Hospitality, Inc." while Patriot Operating Company will change its name to
"Wyndham International, Inc." In the Merger, each share of Wyndham common
stock generally will be converted into 1.372 paired shares (the "Paired
Shares") of Patriot REIT common stock and Patriot Operating Company common
stock; provided, however, that if the average closing price of a Paired
Share over the 20 trading days immediately preceding the fifth business day
prior to the special meeting of the stockholders of Wyndham (the "Patriot
Average Closing Price") is less than $21.86 but greater than or equal to
$20.87, each share of Wyndham common stock will be converted into the
number of Paired Shares equal to $30.00 divided by the Patriot Average
Closing Price, and, in the event that the Patriot Average Closing Price is
less than $20.87, each share of Wyndham common stock will be converted into
1.438 Paired Shares (the "Exchange Ratio"), unless Wyndham exercises its
right to terminate the Merger Agreement in such event. On November 3, 1997,
the closing price of a Paired Share as reported on the New York Stock
Exchange was $31 1/2. The closing price of Wyndham common stock as reported
on the New York Stock Exchange on the same date was $43 1/16.
Pursuant to the Stock Purchase Agreement, Patriot REIT will purchase the
shares of Wyndham common stock owned by CF Securities in exchange for a
combination of Paired Shares at the Exchange Ratio and shares of unpaired
preferred stock of Patriot REIT at the Exchange Ratio, subject to certain
REIT qualification limitations that could, under certain limited
circumstances, result in the payment of cash in lieu of unpaired preferred
stock.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
to elect (a "Cash Election") to receive cash ("Cash Consideration") in the
Merger (and CF Securities has an equivalent right under the Stock Purchase
Agreement) in an amount per share equal to the Exchange Ratio multiplied by
the average
<PAGE>
closing price of a Paired Share over the five trading days immediately
preceding the closing of the Merger up to a maximum of $100 million. CF
Securities has delivered to Patriot REIT a Cash Election pursuant to which
it has elected to receive Cash Consideration for all of its shares of
Wyndham common stock. Thus, Patriot REIT will pay $100 million of cash to
Wyndham stockholders in connection with the Merger.
Copies of the Merger Agreement (together with its amendment), the
Ratification Agreements and the Stock Purchase Agreement are attached as
Annexes A, B, C and D, respectively, to the Joint Statement/Prospectus
accompanying this Notice.
2. To consider and vote upon a proposal to amend the Pairing Agreement,
dated February 17, 1983, as amended (the "Pairing Agreement"), between
Patriot REIT and Patriot Operating Company. A copy of the proposed
amendment to the Pairing Agreement is attached as Annex E to the Joint
Proxy Statement/Prospectus accompanying this Notice.
3. To consider and vote upon a proposal to amend and restate the
Certificate of Incorporation of Patriot Operating Company. A copy of the
proposed Amended and Restated Certificate of Incorporation of Patriot
Operating Company is attached as Annex G to the Joint Proxy
Statement/Prospectus accompanying this Notice.
4. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
Holders of record of shares of Patriot Operating Company common stock at the
close of business on November 12, 1997 are entitled to notice of, and to vote
at, the Patriot Operating Company Special Meeting. A list of such stockholders
will be available for inspection at the offices of Patriot Operating Company
at least ten days prior to the Patriot Operating Company Special Meeting. The
Merger Agreement and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus, and the Annexes thereto.
By Order of the Board of Directors
of Patriot American Hospitality
Operating Company
Rex E. Stewart
Secretary
November 10, 1997
Proxies are being separately solicited by the Boards of Directors of Patriot
Operating Company and Patriot REIT. To ensure representation of your stock at
the Patriot Operating Company Special Meeting, you must mark, sign and return
the enclosed YELLOW proxy card.
- -------------------------------------------------------------------------------
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE PATRIOT OPERATING COMPANY SPECIAL
MEETING, PLEASE COMPLETE, SIGN, DATE, AND RETURN THE ENCLOSED YELLOW PROXY
CARD IN THE ENCLOSED SELF-ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU
ATTEND THE PATRIOT OPERATING COMPANY SPECIAL MEETING, YOU MAY VOTE YOUR SHARES
IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY SIGNED AND RETURNED YOUR PROXY.
2
<PAGE>
WYNDHAM HOTEL CORPORATION
1950 STEMMONS FREEWAY
SUITE 6001
DALLAS, TX 75207
November 10, 1997
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Wyndham Hotel Corporation ("Wyndham") to be held at 8:30 a.m. local time, on
December 12, 1997, at the Wyndham Anatole Hotel located at 2201 Stemmons
Freeway, Dallas, Texas (the "Special Meeting").
At the Special Meeting, you will be asked to approve the Agreement and Plan
of Merger, dated as of April 14, 1997, between Patriot American Hospitality,
Inc., a Virginia corporation ("Old Patriot REIT") and predecessor by merger to
Patriot American Hospitality, Inc., a Delaware corporation ("Patriot REIT"),
and Wyndham, as ratified by Patriot REIT and Patriot American Hospitality
Operating Company ("Patriot Operating Company"), and as amended on November 3,
1997, by Patriot REIT, Patriot Operating Company and Wyndham (collectively,
the "Merger Agreement"), and the transactions contemplated thereby, including
without limitation the merger of Wyndham with and into Patriot REIT (the
"Merger") and the related purchase of Wyndham stock from CF Securities, L.P.
("CF Securities"), the principal stockholder of Wyndham (the "Stock
Purchase").
Pursuant to the Merger, (i) Wyndham will merge with and into Patriot REIT
with Patriot REIT being the surviving company, (ii) Patriot REIT and Patriot
Operating Company, the corporation whose shares of common stock are paired and
trade as a single unit with the shares of common stock of Patriot REIT, will
issue paired shares ("Paired Shares") of Patriot REIT common stock and Patriot
Operating Company common stock to Wyndham stockholders and (iii) it is
contemplated that Patriot Operating Company will change its name to "Wyndham
International, Inc." As a result of the Merger and the related transactions,
you will be entitled to receive, generally, for each share of Wyndham common
stock held by you at the effective time of the Merger, 1.372 Paired Shares;
provided, however, that if the average closing price of a Paired Share over
the 20 trading days immediately preceding the fifth business day prior to the
Special Meeting (the "Patriot Average Closing Price") is less than $21.86 but
greater than or equal to $20.87, each share of Wyndham common stock will be
converted into the number of Paired Shares equal to $30.00 divided by the
Patriot Average Closing Price, and, in the event that the Patriot Average
Closing Price is less than $20.87, each share of Wyndham common stock will be
converted into 1.438 Paired Shares (the "Exchange Ratio"), unless Wyndham
exercises its right to terminate the Merger Agreement in such event. On
November 3, 1997, the closing price of Wyndham common stock as reported on the
New York Stock Exchange was $43 1/16. The closing price of a Paired Share as
reported on the New York Stock Exchange on the same date was $31 1/2.
Pursuant to the Stock Purchase, Patriot REIT will purchase the shares of
Wyndham common stock owned by CF Securities in exchange for a combination of
Paired Shares at the Exchange Ratio and shares of unpaired preferred stock of
Patriot REIT at the Exchange Ratio, subject to certain REIT qualification
limitations that could, under certain limited circumstances, result in the
payment of cash in lieu of unpaired preferred stock.
In lieu of receiving Paired Shares, you have the right (and CF Securities
has an equivalent right pursuant to the Stock Purchase) to elect (a "Cash
Election") to receive cash ("Cash Consideration") in an amount per share equal
to the Exchange Ratio multiplied by the average closing price of a Paired
Share over the five trading days immediately preceding the closing of the
Merger; provided, however, that the maximum amount of cash to be
<PAGE>
paid to Wyndham stockholders and CF Securities pursuant to Cash Elections will
be a total of $100 million. In the event that holders of Wyndham common stock
and CF Securities elect to receive more than $100 million in cash, such cash
will be allocated on a pro rata basis among such stockholders and CF
Securities based on the respective number of shares of Wyndham common stock as
to which they have elected to receive cash, and the Wyndham stockholders
(other than CF Securities) will receive Paired Shares at the Exchange Ratio
for their shares of Wyndham common stock which are not converted into Cash
Consideration. CF Securities has delivered to Patriot REIT a Cash Election
pursuant to which CF Securities has elected to receive Cash Consideration with
respect to all 9,447,745 shares of Wyndham common stock beneficially owned by
CF Securities. Because CF Securities has made a Cash Election with respect to
all of the shares of Wyndham common stock beneficially owned by it, the
maximum amount of cash available to be paid to other holders of Wyndham common
stock in the Merger is expected to be approximately $56,300,000. If no other
stockholders of Wyndham make a Cash Election, CF Securities will receive the
entire $100 million of cash available for Cash Elections.
Your Board of Directors believes that the Merger Agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
Wyndham and its stockholders. The investment banking firm of Smith Barney Inc.
("Smith Barney"), financial advisor to Wyndham, has delivered to the Board of
Directors of Wyndham a written opinion dated April 14, 1997, a copy of which
is attached as Annex I to the accompanying Joint Proxy Statement/Prospectus,
to the effect that, as of the date of such opinion and based upon and subject
to certain matters stated therein, the consideration to be received by holders
of Wyndham common stock in the Merger was fair, from a financial point of
view, to such holders. In addition, the investment banking firm of Merrill
Lynch, Pierce, Fenner & Smith Incorporated has delivered its opinion to the
Special Committee of the Board of Directors of Wyndham, a copy of which is
attached as Annex J to the accompanying Joint Proxy Statement/Prospectus, to
the effect that, as of the date thereof and based upon the assumptions made,
matters considered and limits of review with respect to such opinion, the
consideration to be received by the holders of Wyndham common stock (excluding
CF Securities) in the Merger was fair to such holders from a financial point
of view. The Board of Directors of Wyndham has unanimously approved the Merger
Agreement and the transactions contemplated therein and unanimously recommends
that you vote to approve the Merger Agreement and the transactions
contemplated in the Merger Agreement.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Merger, the reasons for your Board of
Directors' recommendation of the Merger Agreement and the transactions
contemplated in the Merger Agreement and certain additional information,
including, without limitation, the information set forth under the heading
"Risk Factors," which describes, among other items, potential adverse effects
to Wyndham stockholders as a result of the Merger. We urge you to carefully
consider all of the information in the Joint Proxy Statement/Prospectus.
IT IS IMPORTANT THAT YOUR SHARES OF WYNDHAM COMMON STOCK BE REPRESENTED AT
THE SPECIAL MEETING, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. THEREFORE,
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR BLUE PROXY CARD AS SOON AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. ALL
STOCKHOLDERS ARE URGED TO VOTE TO APPROVE THE MERGER PROPOSAL BY COMPLETING,
SIGNING, DATING AND RETURNING THE ENCLOSED BLUE PROXY CARD.
We look forward to the successful combination of the Patriot companies and
Wyndham and to your continued support as a stockholder of the Patriot
companies.
Sincerely,
LOGO
James D. Carreker
President
2
<PAGE>
WYNDHAM HOTEL CORPORATION
1950 STEMMONS FREEWAY
SUITE 6001
DALLAS, TEXAS 75207
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 12, 1997
----------------
To the Stockholders of Wyndham Hotel Corporation:
Notice is hereby given that a Special Meeting of Stockholders of Wyndham
Hotel Corporation, a Delaware corporation ("Wyndham"), will be held on
December 12, 1997, at 8:30 a.m. local time, at the Wyndham Anatole Hotel
located at 2201 Stemmons Freeway, Dallas, Texas (the "Special Meeting") for
the following purposes:
1. To consider and vote upon a proposal to approve the Agreement and Plan
of Merger, dated as of April 14, 1997, between Patriot American
Hospitality, Inc., a Virginia corporation ("Old Patriot REIT") and
predecessor by merger to Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot REIT"), and Wyndham, as ratified by Patriot REIT and
Patriot American Hospitality Operating Company, a Delaware corporation
("Patriot Operating Company"), pursuant to Ratification Agreements, dated
as of July 24, 1997 (the "Ratification Agreements"), and as amended on
November 3, 1997, by Patriot REIT, Patriot Operating Company and Wyndham
(collectively, the "Merger Agreement"), and the transactions contemplated
thereby, including, without limitation, (i) the merger of Wyndham with and
into Patriot REIT (the "Merger"), and (ii) the related purchase of Wyndham
common stock from CF Securities, L.P. ("CF Securities"), the principal
stockholder of Wyndham, (the "Stock Purchase").
Pursuant to the Merger Agreement, Wyndham will merge with and into
Patriot REIT, with Patriot REIT being the surviving company. Following the
Merger, Patriot REIT will continue to be referred to as "Patriot American
Hospitality, Inc." while Patriot Operating Company will change its name to
"Wyndham International, Inc." In the Merger, each share of Wyndham common
stock will be converted into 1.372 paired shares ("Paired Shares") of
Patriot REIT common stock and Patriot Operating Company common stock;
provided, however, that if the average closing price of a Paired Share over
the 20 trading days immediately preceding the fifth business day prior to
the special meeting of the stockholders of Wyndham (the "Patriot Average
Closing Price") is less than $21.86 but greater than or equal to $20.87,
each share of Wyndham common stock will be converted into the number of
Paired Shares equal to $30.00 divided by the Patriot Average Closing Price,
and, in the event that the Patriot Average Closing Price is less than
$20.87, each share of Wyndham common stock will be converted into 1.438
Paired Shares (the "Exchange Ratio"), unless Wyndham exercises its right to
terminate the Merger Agreement in such event. On November 3, 1997, the
closing price of Wyndham common stock as reported on the New York Stock
Exchange was $43 1/16. The closing price of a Paired Share as reported on
the New York Stock Exchange on the same date was $31 1/2.
Pursuant to the Stock Purchase, Patriot REIT will purchase the shares of
Wyndham common stock owned by CF Securities in exchange for a combination
of Paired Shares at the Exchange Ratio and shares of unpaired preferred
stock of Patriot REIT at the Exchange Ratio, subject to certain REIT
qualification limits that could, under certain limited circumstances,
result in the payment of cash in lieu of unpaired preferred stock.
In lieu of receiving Paired Shares, Wyndham stockholders have the right
to elect (a "Cash Election") to receive cash ("Cash Consideration") in the
Merger (and CF Securities has an equivalent right pursuant to the Stock
Purchase) in an amount per share equal to the Exchange Ratio multiplied by
the average closing price of a Paired Share over the five trading days
immediately preceding the closing of the Merger; provided, however, that
the maximum amount of cash to be paid to Wyndham stockholders and CF
<PAGE>
Securities pursuant to Cash Elections will be a total of $100 million. In
the event that holders of Wyndham common stock and CF Securities elect to
receive more than $100 million in cash, such cash will be allocated on a
pro rata basis among such stockholders and CF Securities based on the
respective number of shares of Wyndham common stock as to which they have
elected to receive cash, and the Wyndham stockholders (other than CF
Securities) will receive Paired Shares at the Exchange Ratio for their
shares of Wyndham common stock which are not converted into Cash
Consideration. CF Securities has delivered to Patriot REIT a Cash Election
pursuant to which CF Securities has elected to receive Cash Consideration
with respect to all 9,447,745 shares of Wyndham common stock beneficially
owned by CF Securities. Because CF Securities has made a Cash Election with
respect to all of the shares of Wyndham common stock beneficially owned by
it, the maximum amount of cash available to be paid to other holders of
Wyndham common stock in the Merger is expected to be approximately
$56,300,000. If no other stockholders of Wyndham make a Cash Election, CF
Securities will receive the entire $100 million of cash available for Cash
Elections.
Copies of the Merger Agreement (together with its amendment), the
Ratification Agreements and the Stock Purchase Agreement are attached as
Annexes A, B, C and D, respectively, to the Joint Proxy
Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors of Wyndham has fixed the close of business on
November 12, 1997 as the record date for the determination of the holders of
shares of Wyndham common stock entitled to notice of, and to vote at, the
Special Meeting. A list of such stockholders will be available for inspection
at the offices of Wyndham at least ten days prior to the Special Meeting. The
Merger Agreement and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus, and the Annexes thereto.
It is possible but unlikely that stockholders of Wyndham may, if they follow
certain procedures, have appraisal rights with respect to their Wyndham
shares. See "The Merger and Subscription--Appraisal Rights" in the
accompanying Joint Proxy Statement/Prospectus.
By Order of the Board of Directors
of Wyndham Hotel Corporation
Carla S. Moreland
Secretary
November 10, 1997
- -------------------------------------------------------------------------------
IMPORTANT
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME, BUT
PLEASE REFER TO THE INSTRUCTIONS IN THE JOINT PROXY STATEMENT/PROSPECTUS
RELATING TO THE PROCEDURE FOR MAKING A CASH ELECTION IF YOU DESIRE TO DO SO.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE, AND RETURN THE ENCLOSED BLUE PROXY CARD IN THE ENCLOSED SELF-
ADDRESSED ENVELOPE AS PROMPTLY AS POSSIBLE. IF YOU ATTEND THE SPECIAL MEETING,
YOU MAY VOTE YOUR SHARES IN PERSON, EVEN THOUGH YOU HAVE PREVIOUSLY SIGNED AND
RETURNED YOUR PROXY.
2
<PAGE>
PATRIOT AMERICAN HOSPITALITY, INC.
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
AND
WYNDHAM HOTEL CORPORATION
JOINT PROXY STATEMENT
----------------
PATRIOT AMERICAN HOSPITALITY, INC.
AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
PROSPECTUS
This Joint Proxy Statement and Prospectus (the "Joint Proxy
Statement/Prospectus") relates to, among other things, (i) the shares of
common stock, par value $.01 per share (the "Patriot REIT Common Stock"), of
Patriot American Hospitality, Inc., a Delaware corporation ("Patriot REIT"),
and common stock, par value $.01 per share (the "Patriot Operating Company
Common Stock"), of Patriot American Hospitality Operating Company, a Delaware
corporation ("Patriot Operating Company"), which shares are paired and trade
as a single unit (the "Paired Shares") on the New York Stock Exchange (the
"NYSE"), that may be issued pursuant to an Agreement and Plan of Merger dated
as of April 14, 1997 between Patriot American Hospitality, Inc., a Virginia
corporation ("Old Patriot REIT") and predecessor by merger to Patriot REIT,
and Wyndham Hotel Corporation, a Delaware corporation ("Wyndham"), as ratified
by Patriot REIT and Patriot Operating Company pursuant to Ratification
Agreements dated as of July 24, 1997 (the "Ratification Agreements") and as
amended by Amendment No. 1 to Agreement and Plan of Merger, dated November 3,
1997, between Patriot REIT, Patriot Operating Company and Wyndham
(collectively, the "Merger Agreement"), and (ii) the Paired Shares and the
shares of unpaired Series A Convertible Preferred Stock, par value $.01 per
share, of Patriot REIT (the "Series A Preferred Stock") that may be issued
pursuant to a Stock Purchase Agreement dated as of April 14, 1997 (the "Stock
Purchase Agreement") between Old Patriot REIT and CF Securities, L.P. ("CF
Securities"), the principal stockholder of Wyndham. This Joint Proxy
Statement/Prospectus and the accompanying forms of proxy are first being
mailed to stockholders of Patriot REIT, Patriot Operating Company and Wyndham
on or about November 10, 1997.
Pursuant to the Merger Agreement, Wyndham will merge with and into Patriot
REIT (the "Merger"), with Patriot REIT being the surviving company. The Merger
Agreement generally provides for the conversion of each outstanding share of
common stock, par value $.01 per share, of Wyndham (the "Wyndham Common
Stock"), other than shares as to which the holder thereof has elected to
receive cash (subject to proration), into the right to receive 1.372 Paired
Shares. However, in the event the average closing price of a Paired Share as
reported on the NYSE over the 20 trading days immediately preceding the fifth
business day prior to the special meeting of the stockholders of Wyndham (the
"Patriot Average Closing Price") is less than $21.86 but greater than or equal
to $20.87, each such share will be converted into the right to receive the
number of Paired Shares equal to $30.00 divided by the Patriot Average Closing
Price. In the event that the Patriot Average Closing Price is less than
$20.87, each such share will be converted into the right to receive 1.438
Paired Shares (the applicable conversion ratio being referred to as the
"Exchange Ratio"), provided, however, that in such circumstances Wyndham has
the right, waivable by it, to terminate the Merger Agreement. The Merger
Agreement also provides that, in lieu of receiving Paired Shares in the
Merger, stockholders of Wyndham may elect (a "Cash Election") to receive cash
("Cash Consideration") for all or any portion of their shares of Wyndham
Common Stock in an amount per share equal to the Exchange Ratio multiplied by
the average closing price of a Paired Share over the five trading days
immediately preceding the closing of the Merger, subject to an aggregate
availability of $100 million of cash for all Cash Elections (including a Cash
Election by CF Securities pursuant to the Stock Purchase Agreement).
As a result of certain provisions of the Internal Revenue Code applicable to
"real estate investment trusts" ("REITs") like Patriot REIT, the shares of
Wyndham Common Stock beneficially owned by CF Securities
<PAGE>
(approximately 43.7% of the total outstanding shares of Wyndham Common Stock
as of November 3, 1997) cannot be converted solely into Paired Shares pursuant
to the terms of the Merger Agreement. Accordingly, in connection with the
execution of the Merger Agreement in April 1997, Patriot REIT and CF
Securities entered into the Stock Purchase Agreement. The Stock Purchase
Agreement provides for the issuance, immediately prior to consummation of the
Merger, and subject to certain REIT qualification limitations, of a
combination of Paired Shares at the Exchange Ratio and shares of Series A
Preferred Stock at the Exchange Ratio to CF Securities in connection with the
purchase (the "Stock Purchase") by Patriot REIT of up to 9,447,745 shares of
Wyndham Common Stock beneficially owned by CF Securities. In addition, CF
Securities has an equivalent right to make a Cash Election as if it were a
stockholder of Wyndham at the time of the Merger. CF Securities has made a
Cash Election with respect to all 9,447,745 shares of Wyndham Common Stock
beneficially owned by it.
Under the terms of the Merger Agreement, the maximum amount of cash to be
paid to Wyndham stockholders and CF Securities pursuant to Cash Elections will
be a total of $100 million. In the event that holders of Wyndham Common Stock
and CF Securities elect to receive more than $100 million in cash, such cash
will be allocated on a pro rata basis among such stockholders and CF
Securities based on the respective number of shares of Wyndham Common Stock as
to which they have elected to receive cash, and the Wyndham stockholders
(other than CF Securities) will receive Paired Shares at the Exchange Ratio
for their shares of Wyndham Common Stock which are not converted into Cash
Consideration. Under such circumstances, CF Securities will receive a
combination of Paired Shares and Series A Preferred Stock (subject to certain
REIT qualification limitations that could, under certain limited
circumstances, result in the payment of cash in lieu of Series A Preferred
Stock) pursuant to the terms of the Stock Purchase Agreement for its shares of
Wyndham Common Stock which are not exchanged for Cash Consideration. CF
Securities has delivered to Patriot REIT a Cash Election pursuant to which CF
Securities has elected to receive Cash Consideration with respect to all
9,447,745 shares of Wyndham Common Stock beneficially owned by CF Securities.
Because CF Securities has made a Cash Election with respect to all of the
shares of Wyndham Common Stock beneficially owned by it, the maximum amount of
cash available to be paid to other holders of Wyndham Common Stock in the
Merger is expected to be approximately $56,300,000. If no other stockholders
of Wyndham make a Cash Election, CF Securities will receive the entire $100
million of cash available for Cash Elections.
In connection with the Merger, Patriot REIT's operating partnership has also
entered into an Omnibus Purchase and Sale Agreement, dated as of April 14,
1997 (the "Omnibus Purchase and Sale Agreement"), and eleven individual
purchase and sale agreements, with partnerships owned by certain Crow family
members, certain members of Wyndham's senior management and others, providing
for the acquisition by Patriot REIT's operating partnership of up to 11 full-
service Wyndham-branded hotels with 3,072 rooms for an aggregate purchase
price of approximately $331.7 million in cash plus up to $14 million in
additional cash consideration if two of the hotels meet certain cash flow
targets (the "Crow Assets Acquisition"). The Crow Assets Acquisition is
subject to various closing conditions, including approval of the Merger by the
stockholders of Patriot REIT, Patriot Operating Company and Wyndham (which
condition may be waived by such parties). Pursuant to the Merger Agreement,
the obligation of Patriot REIT to consummate the Merger is subject to the
condition, waivable by Patriot REIT, that the closing of the transactions
contemplated by the Omnibus Purchase and Sale Agreement shall have become
effective subject only to the Merger becoming effective at the effective time
of the Merger.
This Joint Proxy Statement/Prospectus is being furnished to (i) the
stockholders of Patriot REIT and Patriot Operating Company in connection with
the solicitation of proxies by the Boards of Directors of Patriot REIT and
Patriot Operating Company from holders of outstanding shares of Patriot REIT
Common Stock and Patriot Operating Company Common Stock, respectively, for use
at the special meetings of stockholders of Patriot REIT and Patriot Operating
Company scheduled to be held on December 12, 1997 at the Wyndham Anatole Hotel
located at 2201 Stemmons Freeway, Dallas, Texas, and at any adjournment or
postponement thereof, and (ii) the stockholders of Wyndham in connection with
the solicitation of proxies by the Board of Directors of Wyndham from holders
of outstanding shares of Wyndham Common Stock, for use at the special meeting
of stockholders of Wyndham scheduled to be held on December 12, 1997 at the
Wyndham Anatole Hotel located at 2201 Stemmons Freeway, Dallas, Texas, at 8:30
a.m. local time, and at any adjournment or postponement thereof.
(ii)
<PAGE>
The Patriot REIT special meeting will be held at 9:30 a.m. local time and the
Patriot Operating Company special meeting will be held at 10:30 a.m. local
time.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Patriot
REIT and Patriot Operating Company with respect to the issuance of (i) up to
32,570,537 Paired Shares to be issued to stockholders of Wyndham and to CF
Securities in connection with the transactions contemplated by the Merger
Agreement and the Stock Purchase Agreement, (ii) up to 13,585,857 shares of
Series A Preferred Stock to be issued to CF Securities in connection with the
transactions contemplated by the Stock Purchase Agreement, (iii) up to
13,585,857 Paired Shares to be issued to CF Securities upon conversion of
shares of Series A Preferred Stock, and (iv) the offering and resale from time
to time of up to 20,326,267 Paired Shares by certain stockholders of Wyndham
(including the Paired Shares issuable upon conversion of the shares of Series
A Preferred Stock). The numbers of shares in (i) and (ii) above represent the
maximum numbers estimated for each of the Paired Shares and shares of Series A
Preferred Stock that could be issued in the Merger and the Stock Purchase.
Those numbers will vary depending upon the Exchange Ratio and the number of
shares of Wyndham Common Stock as to which a Cash Election is made by
stockholders of Wyndham other than CF Securities. The number of such Paired
Shares and shares of Series A Preferred Stock actually issued, taken as a
whole, will be less than the sum of the shares in (i) and (ii) above.
The affirmative vote of the holders of a majority of the outstanding shares
of Patriot REIT Common Stock and Patriot Operating Company Common Stock is
required to approve the Merger and the other proposals to be voted upon at the
special meetings of the stockholders of Patriot REIT and Patriot Operating
Company. The affirmative vote of the holders of two-thirds of the outstanding
shares of Wyndham Common Stock is required to approve the Merger at the
special meeting of the stockholders of Wyndham. Pursuant to a Proxy Agreement,
dated as of April 14, 1997, CF Securities and certain executive officers of
Wyndham have, subject to certain conditions, agreed to vote a total of
11,859,041 shares of Wyndham Common Stock beneficially owned by them
(representing 54.9% of the total issued and outstanding shares of Wyndham
Common Stock as of November 3, 1997) in favor of the Merger.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"RISK FACTORS" ON PAGE 58.
Any stockholders who would like information with respect to the Exchange
Ratio may call MacKenzie Partners, Inc., the proxy solicitor for Patriot REIT,
Patriot Operating Company and Wyndham, at 1-800-322-2885. MacKenzie Partners,
Inc. will provide to any requesting stockholder an estimate of the Exchange
Ratio as of any date prior to the final determination of the Exchange Ratio.
MacKenzie Partners, Inc. also will provide instructions on how to submit
proxies in a timely manner, including for any stockholder who wishes to wait
until the Exchange Ratio is finally determined. In addition, any Patriot REIT,
Patriot Operating Company or Wyndham stockholder who wishes to change its vote
relating to any proposal may do so by transmitting such request via facsimile
to MacKenzie Partners, Inc. at (212) 929-0308.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Patriot REIT and Patriot Operating Company has been provided by
Patriot REIT and Patriot Operating Company, respectively. All information
contained in this Joint Proxy Statement/Prospectus with respect to Wyndham has
been provided by Wyndham.
A STOCKHOLDER WHO HAS GIVEN A PROXY MAY REVOKE IT AT ANY TIME PRIOR TO ITS
EXERCISE.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus is November 10, 1997.
(iii)
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE
HEREOF.
AVAILABLE INFORMATION
Patriot REIT, Patriot Operating Company and Wyndham are each subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and in accordance therewith file reports,
proxy and information statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by Patriot REIT, Patriot Operating
Company and Wyndham can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and may be available at the
following Regional Offices of the Commission: Chicago Regional Office,
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661;
and New York Regional Office, 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials can be obtained at prescribed rates from
the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Patriot REIT, Patriot Operating Company
and Wyndham are also required to file electronic versions of these documents
with the Commission through the Commission's Electronic Data Gathering
Analysis and Retrieval (EDGAR) system. The Commission maintains a world wide
web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. In addition, reports, proxy and
information statements and other information concerning Patriot REIT, Patriot
Operating Company and Wyndham can be inspected at the offices of the NYSE, 20
Broad Street, New York, New York 10005, on which the Paired Shares and Wyndham
Common Stock are currently listed.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which
this Joint Proxy Statement/Prospectus is a part, and which Patriot REIT and
Patriot Operating Company have filed with the Commission under the Securities
Act of 1933, as amended. Reference is made to such Registration Statement for
further information with respect to Patriot REIT, Patriot Operating Company
and Wyndham and the Paired Shares offered hereby. Statements contained herein
or incorporated herein by reference concerning the provisions of documents are
summaries of such documents. Each statement is qualified in its entirety by
reference to the copy of the applicable document if filed with the Commission
or attached as an annex hereto.
(iv)
<PAGE>
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are hereby
incorporated by reference into this Joint Proxy Statement/Prospectus:
PATRIOT REIT AND PATRIOT OPERATING COMPANY
1. Current Reports on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated (i) July 1, 1997 (Nos.
001-09319 and 001-09320 filed July 15, 1997), (ii) July 15, 1997 (Nos. 001-
09319 and 001-09320 filed July 21, 1997), (iii) July 22, 1997 (Nos. 001-09319
and 001-09320 filed July 22, 1997), (iv) September 17, 1997 (Nos. 001-09319
and 001-09320 filed September 17, 1997) and (v) September 30, 1997, as amended
(Nos. 001-09319 and 001-09320 filed October 14, 1997 and October 28, 1997);
2. The description of the Paired Shares of Patriot REIT Common Stock and
Patriot Operating Company Common Stock contained or incorporated by reference
in Patriot REIT's and Patriot Operating Company's Registration Statement on
Form 8-A (Nos. 001-09319, 001-09320), including any amendments thereto; and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (Nos. 001-09319, 001-09320) for
the fiscal quarter ended June 30, 1997.
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
1. Annual Report on Form 10-K of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal year ended
December 31, 1996;
2. Current Reports on Form 8-K of California Jockey Club and Bay Meadows
Operating Company dated (i) February 24, 1997 (Nos. 001-09319, 001-09320 filed
March 3, 1997) and (ii) May 28, 1997 (Nos. 001-09319, 001-09320 filed June 5,
1997);
3. Quarterly Report on Form 10-Q of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter ended
March 31, 1997; and
4. Quarterly Report on Form 10-Q/A of California Jockey Club and Bay Meadows
Operating Company (Nos. 001-09319, 001-09320) for the fiscal quarter ended
March 31, 1997 (filed May 16, 1997).
PATRIOT AMERICAN HOSPITALITY, INC. (OLD PATRIOT REIT)
1. Annual Report on Form 10-K of Patriot American Hospitality, Inc. (No.
001-13898) for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Patriot American Hospitality, Inc. dated
(i) April 2, 1996, as amended (No. 001-13898 filed April 17, 1996 and June 14,
1996), (ii) December 5, 1996 (No. 001-13898 filed December 5, 1996), (iii)
January 16, 1997, as amended (No. 001-13898 filed January 31, 1997, February
21, 1997, April 8, 1997, April 9, 1997 and May 19, 1997), (iv) February 24,
1997 (No. 001-13898 filed March 3, 1997) and (v) April 14, 1997, as amended
(No. 001-13898 filed April 17, 1997 and April 18, 1997); and
3. Quarterly Report on Form 10-Q of Patriot American Hospitality, Inc. (No.
001-13898) for the fiscal quarter ended March 31, 1997.
WYNDHAM
1. Annual Report on Form 10-K of Wyndham Hotel Corporation (No. 001-11723)
for the fiscal year ended December 31, 1996;
2. Current Reports on Form 8-K of Wyndham Hotel Corporation dated (i) April
14, 1997 (No. 001-11723, filed April 23, 1997) and (ii) July 31, 1997 (No.
001-11723, filed August 15, 1997);
(v)
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3. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended March 31, 1997;
4. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended March 31, 1997 (filed June 2, 1997);
5. Quarterly Report on Form 10-Q of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended June 30, 1997;
6. Quarterly Report on Form 10-Q/A of Wyndham Hotel Corporation (No. 001-
11723) for the quarter ended June 30, 1997 (filed August 29, 1997);
7. Proxy Statement of Wyndham Hotel Corporation (No. 001-11723) for the
Annual Meeting of Stockholders held April 28, 1997 (filed March 27, 1997); and
8. Current Report on Form 8-K/A of Wyndham Hotel Corporation dated September
18, 1997 (No. 001-11723, filed September 18, 1997).
In addition, all reports and other documents filed by each of Patriot REIT,
Patriot Operating Company and Wyndham pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the
Patriot REIT special meeting, the Patriot Operating Company special meeting
and the Wyndham special meeting shall be deemed to be incorporated by
reference herein and to be made a part hereof from the date of filing of such
reports and documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Joint Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document that also is incorporated or deemed to be incorporated by reference
herein, modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus.
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (NOT
INCLUDING EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE,
UPON WRITTEN OR ORAL REQUEST OF ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS JOINT PROXY STATEMENT/ PROSPECTUS IS DELIVERED BY DIRECTING REQUESTS
AS FOLLOWS: IN THE CASE OF DOCUMENTS RELATING TO PATRIOT REIT OR PATRIOT
OPERATING COMPANY, 3030 LBJ FREEWAY, SUITE 1500, DALLAS, TEXAS 75234,
ATTENTION: SHAREHOLDER RELATIONS (TELEPHONE NO. (972) 888-8000), OR, IN THE
CASE OF DOCUMENTS RELATING TO WYNDHAM, 1950 STEMMONS FREEWAY, SUITE 6001,
DALLAS, TEXAS 75207, ATTENTION: CARLA S. MORELAND (TELEPHONE NO. (214) 863-
1000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD
BE MADE BY DECEMBER 5, 1997.
(vi)
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TABLE OF CONTENTS
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SUMMARY................................................................... 1
General................................................................. 1
The Companies........................................................... 2
The Meetings of Stockholders............................................ 8
The Merger and Subscription............................................. 10
Crow Assets Acquisition................................................. 13
Reasons for the Merger and the Related Transactions; Recommendations of
the Boards of Directors................................................ 14
Opinions of Financial Advisors.......................................... 15
Certain Federal Income Tax Consequences................................. 16
Accounting Treatment.................................................... 17
Certain Resale Restrictions............................................. 17
New York Stock Exchange Listing......................................... 18
Appraisal Rights........................................................ 18
Proxy Agreement......................................................... 18
Transfer Restriction Agreement.......................................... 19
Standstill Agreement.................................................... 19
Voting Agreements....................................................... 19
Agreement with Respect to Amendments.................................... 19
Summary Risk Factors.................................................... 20
The Merger Agreement.................................................... 23
Comparison of Stockholder Rights........................................ 28
Interests of Certain Officers, Directors and Stockholders............... 31
Summary Financial Information........................................... 34
Comparative Per Share Data.............................................. 53
Comparative Market Data................................................. 55
Historical Ratio of Earnings to Fixed Charges for Patriot REIT.......... 56
Distribution and Dividend Policy........................................ 56
RISK FACTORS.............................................................. 58
Failure to Manage Rapid Growth and Integrate Operations Following the
Merger................................................................. 58
Substantial Debt Obligations............................................ 58
Dilution to Earnings Caused by Acquisition of Wyndham................... 59
Conflicts of Interest Between Patriot REIT and Wyndham International.... 59
Conflicts of Interest of Certain Officers, Directors and Stockholders of
Wyndham................................................................ 60
REIT Tax Risks.......................................................... 60
Dependence on Lessees and Payments under the Participating Leases....... 62
Hotel Industry Risks.................................................... 63
Real Estate Investment Risks............................................ 64
Dependence on Management Contracts...................................... 66
Substantial Expenses and Payments if Merger Fails to Occur.............. 67
Risks of Operating Hotels Under Franchise or Brand Affiliations......... 67
Lack of Control Over Operations of Certain Hotels Leased or Managed by
Third Parties.......................................................... 67
Stock Price Fluctuations................................................ 68
Horse Racing Industry Risks............................................. 68
Conflicts in Certain Hotel Markets...................................... 68
Risks Associated with the Patriot Companies' Higher Proportion of Owned
Properties............................................................. 68
Comparison of Stockholder Rights........................................ 69
Possible Adverse Effects on Market Price of Paired Shares Arising from
Shares Available for Future Sale....................................... 70
Adverse Effect of Increase in Market Interest Rates on Price of Paired
Shares................................................................. 70
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Appraisal Rights........................................................ 70
THE COMPANIES............................................................. 71
The Patriot Companies................................................... 71
Wyndham................................................................. 73
Surviving Companies..................................................... 74
Recent Developments..................................................... 76
DESCRIPTION OF THE PARTNERSHIP AGREEMENTS................................. 80
Patriot REIT Partnership................................................ 80
Patriot Operating Company Partnership................................... 83
THE MEETINGS OF STOCKHOLDERS.............................................. 84
Patriot Special Meetings................................................ 84
Wyndham Special Meeting................................................. 86
THE MERGER AND SUBSCRIPTION............................................... 87
Terms of the Merger and Subscription.................................... 87
Terms of the Stock Purchase............................................. 89
Background of the Merger................................................ 90
Reasons for the Merger and the Related Transactions; Recommendations of
the Boards of Directors of the Patriot Companies....................... 99
Opinion of Financial Advisor to the Patriot Companies................... 102
Reasons for the Merger and the Related Transactions; Recommendation of
the Board of Directors of Wyndham...................................... 107
Reasons for the Merger and the Related Transactions; Recommendation of
the Wyndham Special Committee.......................................... 111
Opinions of Wyndham's Financial Advisors................................ 111
Interests of Certain Officers, Directors and Stockholders of Wyndham.... 122
Certain Transactions.................................................... 127
Accounting Treatment.................................................... 128
Regulatory Approval..................................................... 128
Certain Resale Restrictions............................................. 128
New York Stock Exchange Listing......................................... 129
Appraisal Rights........................................................ 129
THE MERGER AGREEMENT...................................................... 133
General................................................................. 133
The Merger and Subscription............................................. 133
Effective Time of the Merger............................................ 134
Charters and Bylaws..................................................... 134
Cash Election Procedure................................................. 134
Exchange of Wyndham Stock Certificates.................................. 135
Wyndham Options......................................................... 136
Conditions to the Merger................................................ 137
Representations and Warranties.......................................... 140
Certain Covenants....................................................... 140
Indemnification......................................................... 146
Termination............................................................. 148
Amendments.............................................................. 149
THE STOCK PURCHASE AGREEMENT.............................................. 150
General................................................................. 150
Representations, Warranties and Agreements.............................. 150
Conditions to the Stock Purchase........................................ 151
Termination............................................................. 151
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THE OMNIBUS PURCHASE AND SALE AGREEMENT................................... 152
General................................................................. 152
Purchase and Sale of Properties......................................... 152
Earnout Properties...................................................... 152
Representations and Warranties.......................................... 153
Certain Covenants....................................................... 153
Conditions to Closing................................................... 155
Termination............................................................. 155
Termination Fees........................................................ 156
CERTAIN RELATED AGREEMENTS................................................ 157
Proxy Agreement......................................................... 157
Transfer Restriction Agreement.......................................... 158
Standstill Agreement.................................................... 158
Voting Agreements....................................................... 159
Agreement with Respect to Amendments.................................... 159
PROPOSAL TO APPROVE THE AMENDMENT TO THE PAIRING AGREEMENT................ 160
PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE PATRIOT REIT AND
PATRIOT OPERATING COMPANY CHARTERS....................................... 161
OWNERSHIP OF WYNDHAM COMMON STOCK PRIOR TO THE MERGER..................... 163
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS................................. 165
Tax Consequences of the Merger.......................................... 165
Merger Dividend......................................................... 167
REIT Qualification...................................................... 168
Effects of Compliance with REIT Requirements............................ 170
Non-Deductibility of Parachute Payment.................................. 171
Taxation of Wyndham International; Non-Controlled Subsidiaries.......... 171
Federal Income Taxation of Holders of Paired Shares..................... 171
UNAUDITED PRO FORMA FINANCIAL STATEMENTS.................................. 175
MANAGEMENT OF PATRIOT REIT AND WYNDHAM INTERNATIONAL...................... 239
Patriot REIT............................................................ 239
Wyndham International................................................... 242
DESCRIPTION OF CAPITAL STOCK.............................................. 246
Common Stock............................................................ 246
Preferred Stock......................................................... 246
Patriot REIT Series A Preferred Stock................................... 247
Patriot Operating Company Series A Preferred Stock and Series B
Preferred Stock........................................................ 247
Excess Stock............................................................ 248
The Amended Pairing Agreement........................................... 249
The Cooperation Agreement............................................... 249
Certain Provisions of the Restated Charters and Restated Bylaws......... 256
COMPARISON OF STOCKHOLDERS RIGHTS......................................... 267
Comparison of Rights of Wyndham Stockholders to Stockholders of Patriot
REIT and Wyndham International......................................... 267
Comparison of Rights of Stockholders of Patriot REIT and Patriot
Operating Company to Stockholders of Patriot REIT and Wyndham
International Following the Merger..................................... 274
LITIGATION................................................................ 276
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SELLING SECURITYHOLDERS............................................... 277
PLAN OF DISTRIBUTION.................................................. 278
OTHER MATTERS......................................................... 279
LEGAL MATTERS......................................................... 279
EXPERTS............................................................... 280
STOCKHOLDER PROPOSALS................................................. 282
GLOSSARY OF DEFINED TERMS............................................. 283
FINANCIAL STATEMENTS FOR CROW FAMILY HOTEL PARTNERSHIPS............... F-1-F-13
FINANCIAL STATEMENTS FOR WHG RESORTS & CASINOS INC. .................. F-14-F-61
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ANNEXES
A.Agreement and Plan of Merger and Amendment thereto
B.Patriot REIT Ratification Agreement
C.Patriot Operating Company Ratification Agreement
D.Stock Purchase Agreement
E.Proposed Form of Amendment No. 3 to Pairing Agreement
F.Proposed Form of Amended and Restated Certificate of Incorporation of
Patriot REIT
G.Proposed Form of Amended and Restated Certificate of Incorporation of
Patriot Operating Company
H. Opinion of Financial Advisor of Patriot REIT and Patriot Operating
Company: PaineWebbber Incorporated
I.Opinion of Financial Advisor for Wyndham: Smith Barney Inc.
J. Opinion of Financial Advisor for Wyndham Special Committee: Merrill
Lynch, Pierce, Fenner & Smith Incorporated
K.Delaware Statutory Appraisal Rights
(x)
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/Prospectus and the Annexes hereto relating to the Merger
Agreement and the Related Transactions, including, without limitation, the
transactions contemplated by the Stock Purchase Agreement. Pursuant to the
Merger Agreement, Wyndham will merge with and into Patriot REIT, with Patriot
REIT being the surviving company. This summary does not purport to contain all
information relating to the Merger Agreement or the Related Transactions,
including the Merger, and is qualified in its entirety by the more detailed
information and financial statements contained or incorporated by reference in
this Joint Proxy Statement/Prospectus. STOCKHOLDERS OF PATRIOT REIT, PATRIOT
OPERATING COMPANY AND WYNDHAM SHOULD READ CAREFULLY THIS JOINT PROXY
STATEMENT/PROSPECTUS AND THE ANNEXES ATTACHED HERETO. CAPITALIZED TERMS USED IN
THIS JOINT PROXY STATEMENT/PROSPECTUS HAVE THE MEANINGS ASCRIBED TO SUCH TERMS
UNDER THE SECTION OF THIS JOINT PROXY STATEMENT/PROSPECTUS ENTITLED "GLOSSARY
OF DEFINED TERMS," WHICH BEGINS ON PAGE 283.
GENERAL
This Joint Proxy Statement/Prospectus relates to the Merger and Related
Transactions and to the Paired Shares that may be issued pursuant to the Merger
Agreement and the Paired Shares and shares of Series A Preferred Stock of
Patriot REIT that may be issued pursuant to the Stock Purchase Agreement. It
also relates to Paired Shares issuable upon conversion of such shares of Series
A Preferred Stock and to Paired Shares upon the resale thereof by certain
stockholders of Wyndham.
Pursuant to the Merger Agreement, Wyndham will merge with and into Patriot
REIT, with Patriot REIT being the surviving company. The Merger Agreement
generally provides for the conversion of each outstanding share of Wyndham
Common Stock, other than shares as to which the holder thereof has made a Cash
Election (subject to proration), into the right to receive 1.372 Paired Shares.
In the event the Patriot Average Closing Price is less than $21.86 but greater
than or equal to $20.87, each such share of Wyndham Common Stock will be
converted into the right to receive the number of Paired Shares equal to $30.00
divided by the Patriot Average Closing Price. In the event that the Patriot
Average Closing Price is less than $20.87, each such share of Wyndham Common
Stock will be converted into the right to receive 1.438 Paired Shares,
provided, however, that in such circumstances Wyndham has the right, waivable
by it, to terminate the Merger Agreement. The Merger Agreement also provides
that, in lieu of receiving Paired Shares in the Merger, stockholders of Wyndham
may make a Cash Election to receive Cash Consideration for all or any portion
of their shares of Wyndham Common Stock in an amount per share equal to the
Cash Consideration Fair Market Value, subject to an aggregate availability of
$100 million of cash, as described below. A copy of the Merger Agreement is
attached to this Joint Proxy Statement/Prospectus as Annex A. See "The Merger
and Subscription--Terms of the Merger and Subscription."
As a result of certain provisions of the Code applicable to REITs like
Patriot REIT, the shares of Wyndham Common Stock beneficially owned by CF
Securities cannot be converted solely into Paired Shares pursuant to the terms
of the Merger Agreement. Accordingly, in connection with the execution of the
Merger Agreement in April 1997, Patriot REIT and CF Securities entered into the
Stock Purchase Agreement. The Stock Purchase Agreement provides for the
issuance, immediately prior to consummation of the Merger, of a combination of
Paired Shares at the Exchange Ratio and shares of Series A Preferred Stock at
the Exchange Ratio to CF Securities in connection with the purchase by Patriot
REIT of up to 9,447,745 shares of Wyndham Common Stock beneficially owned by CF
Securities. Under the terms of the Stock Purchase Agreement, CF Securities has
an equivalent right to make a Cash Election as if it were a stockholder of
Wyndham at the time of the Merger. CF Securities has made a Cash Election with
respect to all 9,447,745 shares of Wyndham Common Stock beneficially owned by
it. In the event that the REIT qualification requirements limit the number of
shares of Series A Preferred Stock that can be issued to CF Securities, the
Stock Purchase Agreement provides for the payment of cash to CF Securities at
the Cash Consideration Fair Market Value in lieu of that number of shares
<PAGE>
of Series A Preferred Stock that cannot be issued because of the REIT
qualification limitations. A copy of the Stock Purchase Agreement is attached
to this Joint Proxy Statement/Prospectus as Annex D. See "The Merger and
Subscription--Terms of the Stock Purchase."
Under the terms of the Merger Agreement, the maximum amount of cash to be
paid to Wyndham stockholders and CF Securities pursuant to Cash Elections will
be a total of $100 million. In the event that the Wyndham stockholders and CF
Securities elect to receive more than $100 million in cash, such cash will be
allocated on a pro rata basis among such stockholders and CF Securities based
on the respective numbers of shares of Wyndham Common Stock as to which they
have elected to receive cash, and the Wyndham stockholders (other than CF
Securities) will receive Paired Shares at the Exchange Ratio for their shares
of Wyndham Common Stock which are not converted into Cash Consideration. Under
such circumstances, CF Securities will receive a combination of Paired Shares
and Series A Preferred Stock (subject to certain REIT qualification limitations
that could result in the payment of cash in lieu of shares of Series A
Preferred Stock) pursuant to the terms of the Stock Purchase Agreement for its
shares of Wyndham Common Stock which are not converted into Cash Consideration.
CF Securities has delivered to Patriot REIT a Cash Election pursuant to which
CF Securities has elected to receive Cash Consideration with respect to all
9,447,745 shares to Wyndham Common Stock beneficially owned by CF Securities.
Because CF Securities has made a Cash Election with respect to all of the
shares of Wyndham Common Stock beneficially owned by it, the maximum amount of
cash available to be paid to other holders of Wyndham Common Stock in the
Merger is expected to be approximately $56,300,000. If no other stockholders of
Wyndham make a Cash Election, CF Securities will receive the entire $100
million of cash available for Cash Elections. See "The Merger and
Subscription."
In connection with the Merger, the Patriot REIT Partnership has also entered
into an Omnibus Purchase and Sale Agreement, dated as of April 14, 1997 (the
"Omnibus Purchase and Sale Agreement"), and eleven individual purchase and sale
agreements, with partnerships (the "Crow Family Entities") owned by certain
Crow Family Members, certain members of Wyndham's senior management and others,
providing for the Patriot REIT Partnership's acquisition of 11 full-service
Wyndham-branded hotels with 3,072 rooms (the "Crow Assets") for an aggregate
purchase price of approximately $331.7 million in cash plus up to $14 million
in additional cash consideration if two of the hotels meet certain cash flow
targets (the "Crow Assets Acquisition"). With the exception of the Milwaukee
Hotel, the Crow Assets Acquisition is expected to be consummated
contemporaneously with the closing of the Merger. See "--Crow Assets
Acquisition."
This Joint Proxy Statement/Prospectus also relates to the Patriot REIT
Special Meeting, the Patriot Operating Company Special Meeting and the Wyndham
Special Meeting. At the Patriot REIT Special Meeting, the Patriot REIT
stockholders will consider and vote upon the Merger Proposal, the Pairing
Agreement Amendment Proposal and the Patriot REIT Charter Amendment Proposal.
At the Patriot Operating Company Special Meeting, the Patriot Operating Company
stockholders will consider and vote upon the Merger Proposal, the Pairing
Agreement Amendment Proposal and the Patriot Operating Company Charter
Amendment Proposal. At the Wyndham Special Meeting, the Wyndham stockholders
will consider and vote upon the Merger Proposal. See "The Meetings of
Stockholders--Patriot Special Meetings" and "--Wyndham Special Meeting."
THE COMPANIES
The Patriot Companies
On July 1, 1997, Old Patriot REIT consummated its acquisition of California
Jockey Club and Bay Meadows Operating Company. In the Cal Jockey Merger, Old
Patriot REIT merged with and into Cal Jockey, with Cal Jockey being the
surviving company. Upon consummation of the Cal Jockey Merger, Cal Jockey
changed its name to "Patriot American Hospitality, Inc." and Bay Meadows
changed its name to "Patriot American Hospitality Operating Company." In
connection with the Cal Jockey Merger, Bay Meadows formed
2
<PAGE>
the Patriot Operating Company Partnership into which Bay Meadows contributed
its assets in exchange for partnership units in this partnership, and Cal
Jockey contributed certain of its assets to the Patriot REIT Partnership in
exchange for partnership units of this partnership. Since the Cal Jockey
Merger, substantially all of the operations of Patriot REIT and Patriot
Operating Company have been conducted through the Patriot Partnerships and
their subsidiaries. Each share of Patriot REIT Common Stock is "paired" and
trades on the NYSE as a unit with one share of Patriot Operating Company Common
Stock. Unless the context otherwise requires, historical information contained
herein with respect to Patriot REIT refers to the operation of Old Patriot REIT
prior to the Cal Jockey Merger.
As a result of the Cal Jockey Merger, Patriot REIT became one of two hotel
REITs with a paired share ownership structure. This paired share ownership
structure permits Patriot REIT to lease certain existing hotels, as well as
newly-acquired hotels, to Patriot Operating Company, thereby retaining for the
Patriot Companies' stockholders the economic benefits of both the lease
payments received by Patriot REIT and the operating profits realized by Patriot
Operating Company, while maintaining the tax benefits of Patriot REIT's status
as a REIT under the Code. The paired share ownership structure also facilitates
the Patriot Companies' acquisition and development of hotel management and
franchise businesses, operations which Patriot REIT would have difficulty
pursuing within a traditional REIT structure. See "The Companies--The Patriot
Companies."
Patriot REIT is a self-administered REIT which as of November 3, 1997 owned
interests in 80 hotels, with an aggregate of over 20,100 guest rooms. Patriot
REIT's hotels are diversified by franchise or brand affiliation and serve
primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Miami, San Francisco and Seattle. In
addition to hotels catering primarily to business travelers, Patriot REIT's
portfolio includes world-class resort hotels, including The Boulders, near
Scottsdale, Arizona; The Lodge at Ventana Canyon in Tucson, Arizona; The Peaks
Resort & Spa in Telluride, Colorado; and Carmel Valley Ranch Resort in Carmel,
California (collectively, the "Carefree Resorts"); and prominent hotels in
major tourist destinations. The hotels include 69 full service hotels, 6 resort
hotels, 4 limited service hotels and an executive conference center. Seventy-
six of the hotels are operated under franchise or brand affiliations with
nationally recognized hotel companies, including Marriott(R), Crowne Plaza(R),
Radisson(R), Ramada(R), Hilton(R), Hyatt(R), Four Points by Sheraton(R),
Holiday Inn(R), Wyndham SM, Wyndham Garden(R), WestCoast(R), Doubletree(R),
Embassy Suites(R), Hampton Inn(R), Grand Bay(R), Registry(R), Carefree(R) and
Grand Heritage(R). See "The Companies--The Patriot Companies."
Patriot Operating Company currently leases from Patriot REIT 42 hotels, 24 of
which were purchased by Patriot REIT subsequent to the Cal Jockey Merger.
Patriot Operating Company anticipates acquiring the leases for an additional
two of Patriot REIT's existing hotels in the near future. Additionally, Patriot
REIT expects that a significant portion of its future acquisitions will be
leased to Patriot Operating Company. In 1997, Patriot Operating Company
acquired the management operations of Grand Heritage Hotels and Carefree
Resorts. In addition, Patriot Operating Company provides management services to
the Grand Heritage and Carefree hotels and resorts that it leases from Patriot
REIT.
In addition to leasing and managing hotels, Patriot Operating Company is also
engaged in the business of conducting and offering pari-mutuel wagering
(meaning that individuals wager against each other and not against the operator
of the facility) on thoroughbred horse racing at the Racecourse. In addition to
live horse racing at the Racecourse, Patriot Operating Company simulcasts its
live horse races to as many as 31 sites in California and as many as 450 sites
in the remainder of the world. The Racecourse also acts as an off-track
wagering facility, allowing patrons to wager on horse races at other tracks
even when live horse racing is not being conducted at the Racecourse, by
accepting simulcasts of horse races conducted throughout the United States,
Canada, Mexico, Australia and Hong Kong. See "The Companies--The Patriot
Companies."
The Patriot Companies have entered into a revolving credit facility with
Paine Webber Real Estate, Chase and certain other lenders (collectively, the
"Lenders") for a three-year $700 million unsecured revolving line of
3
<PAGE>
credit (the "Revolving Credit Facility"). As of November 3, 1997, approximately
$555.1 million was outstanding under the Revolving Credit Facility. The
Revolving Credit Facility generally is used for the acquisition of additional
properties, businesses and other assets, for capital expenditures and for
general working capital purposes. The interest rate for the Revolving Credit
Facility ranges from LIBOR plus 1.00% to 2.00% (depending on the Patriot
Companies' leverage ratio or the investment grade rating received from the
rating agencies) or the customary alternate base rate announced from time to
time plus 0.0% to 0.50% (depending on the Patriot Companies' leverage ratio).
In addition, Patriot REIT agreed with partnerships affiliated with the members
of CHC Lease Partners to make or acquire mortgage loans aggregating $103
million relating to four hotels owned by the partnerships, the full amount of
which has been funded. In connection with such loans, Patriot REIT entered into
a short-term financing arrangement with an affiliate of Paine Webber Real
Estate, whereby such affiliate loaned Patriot REIT $103 million through April
15, 1998 at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Revolving Credit Facility. This financing is secured by a
collateral assignment of the mortgage loans encumbering the four hotels. In
September and October 1997, Patriot REIT acquired 100% of the ownership
interests in the four partnerships that own the four hotels. As of November 3,
1997, the Patriot Companies have total outstanding indebtedness of
approximately $826.7 million. See "The Companies--The Patriot Companies."
The Patriot Companies' principal executive offices are located at 3030 LBJ
Freeway, Suite 1500, Dallas, Texas 75234 and the telephone number at this
location is (972) 888-8000.
Wyndham
Wyndham is a national hotel company operating hotels primarily under the
Wyndham brand name. Wyndham hotels are located across the United States, in
Ontario, Canada and on a number of Caribbean islands. Wyndham's upscale hotels
compete with national hotel chains such as Marriott(R), Hyatt(R) and Hilton(R).
Wyndham offers three distinct full service, upscale hotel products under the
Wyndham brand designed to serve its core upscale customers in urban, suburban
and select resort markets. These hotel products include (i) Wyndham Hotels,
which are large hotels located in urban markets and offer a full range of guest
services and amenities, (ii) Wyndham Garden Hotels, which are mid-size hotels
located in suburban markets or near airports and are designed to provide a
guest experience similar to that enjoyed at Wyndham Hotels, but at a price that
is competitive in its markets, and (iii) Wyndham Resorts, which are full
service destination resorts targeted at upscale leisure and incentive travelers
and are located both domestically and on a number of Caribbean islands. See
"The Companies--Wyndham."
At November 3, 1997, Wyndham's portfolio of owned, leased or managed hotels
consisted of 93 hotels operated by Wyndham, as well as 8 franchised hotels,
which in the aggregate contained 24,083 rooms. Wyndham's portfolio included 84
upscale hotel properties and 17 midscale hotel properties operating under the
ClubHouse brand (7 of which will be renovated and converted to upscale Wyndham
Garden Hotels in early 1998).
Wyndham has a revolving credit facility with Bankers Trust Company, as agent
for a group of financial institutions, which provides Wyndham with up to $150
million of revolving loan borrowings. The Wyndham Revolving Credit Facility is
used by Wyndham for, among other things, the acquisition, renovation,
management and operation of certain hotel properties. As of November 3, 1997,
an aggregate of approximately $82.5 million was outstanding under the Wyndham
Revolving Credit Facility with a weighted average interest rate of 7.63%.
Wyndham also has outstanding $100 million of Wyndham Senior Subordinated Notes.
The Wyndham Senior Subordinated Notes mature on May 15, 2006, and bear interest
at 10 1/2% per annum. Wyndham's obligations under the Wyndham Indenture and the
Wyndham Senior Subordinated Notes rank junior in right of payment to Wyndham's
obligations under the Wyndham Revolving Credit Facility. See "The Companies--
Wyndham."
Wyndham's principal executive office is located at 1950 Stemmons Freeway,
Suite 6001, Dallas, Texas 75207 and Wyndham's telephone number at this location
is (214) 863-1000.
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Surviving Companies
Pursuant to the Merger Agreement, Wyndham will merge with and into Patriot
REIT and the companies will continue their operations within the paired share
structure. Following the Merger, the 36 hotels currently in operation that are
owned or leased by Wyndham will be leased or subleased by Patriot REIT to
Patriot Operating Company, whose name will be changed to Wyndham International
in connection with the Merger. In addition, the leases for two hotels currently
leased by Patriot REIT to Crow Hotel Lessee, Inc. will be terminated and re-
leased to Wyndham International. Patriot REIT also will lease the ten hotels to
be acquired from the Crow Family Entities to Wyndham International following
consummation of the Crow Assets Acquisition. Following the Merger, it is
contemplated that all of these hotels will be managed by Wyndham Management
Corporation, currently a wholly owned subsidiary of Wyndham ("WMC"), along with
other hotels currently managed by WMC. It is anticipated that all other
management activities will be carried on by Wyndham International, including
management of other hotels owned by Patriot REIT and leased to Wyndham
International that are not managed by WMC. Wyndham International also will
continue the management operations of the Grand Heritage and Carefree Resorts
divisions, which provide management services to the Grand Heritage and Carefree
Resorts hotels.
Management of the Patriot Companies believes that following the Merger, the
Patriot Companies will be perceived as a nationally branded, fully integrated
hotel company, with enhanced hotel acquisition, ownership, management,
franchising, construction and development capabilities. Management of the
Patriot Companies believes that, from a hotel acquisitions perspective, the
companies will have the ability to maximize returns on newly acquired
properties by leasing them to Wyndham International. Additionally, Patriot REIT
will have the ability to create value by reflagging existing and subsequently
acquired hotel properties utilizing the Wyndham brand. No assurances can be
given, however, that the Patriot Companies will locate attractive acquisition
opportunities or that they will consummate any such acquisitions. See "Risk
Factors--Hotel Industry Risks--Competition for Hotel Acquisition
Opportunities."
Based upon the respective portfolios of the Patriot Companies and Wyndham at
November 3, 1997, after giving effect to the Merger and the Related
Transactions and the Crow Assets Acquisition, the Patriot Companies will have
an aggregate hotel portfolio, including owned, managed, leased and franchised
hotels, consisting of 190 hotels in operation located throughout North America
and the Caribbean, with an aggregate of over 45,700 rooms. Such portfolio will
consist of 113 owned hotels, 13 hotels leased from independent third parties,
56 managed hotels and 8 franchised hotels. The Patriot Companies' aggregate
portfolio following the Merger would represent an increase in the Patriot
Companies' rooms portfolio of over 41,500 rooms since the initial public
offering of Old Patriot REIT in October 1995 (the "Initial Offering").
In connection with the consummation of the Merger, the Patriot REIT Board and
the Patriot Operating Company Board will be reconstituted so that each Board of
Directors will be comprised of directors who were formerly directors of Patriot
REIT, Patriot Operating Company or Wyndham, together with certain other
individuals who have not previously served on any of such Boards of Directors.
Immediately following the Effective Time, the Patriot REIT Board will be
comprised of ten directors, seven of whom have been designated by the Patriot
Companies, two of whom have been designated by Wyndham, and one of whom has
been designated by CF Securities. Immediately following the Effective Time, the
Wyndham International Board will be comprised of ten directors, seven of whom
have been designated by the Patriot Companies, two of whom have been designated
by Wyndham, and one of whom has been designated by CF Securities. An additional
Patriot REIT designee and an additional Wyndham designee may be added to the
Patriot REIT Board and the Wyndham International Board, respectively, within
six months following the Effective Time. The executive officers of Patriot REIT
and Wyndham International following the Merger will be the current executive
officers of Patriot REIT and Patriot Operating Company, respectively, except
that William W. Evans III, who currently serves in the Office of the Chairman
of Patriot REIT, will become the President and Chief Operating Officer of
Patriot REIT, Anne L. Raymond, the current Executive Vice President and Chief
Financial Officer of Wyndham,
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will become the Chief Financial Officer and an Executive Vice President of
Patriot REIT, and James D. Carreker, the current President and Chief Executive
Officer of Wyndham, will become the Chief Executive Officer and Chairman of the
Board of Wyndham International. See "The Companies--Surviving Companies" and
"Management of Patriot REIT and Wyndham International."
Patriot REIT has entered into a commitment letter with Paine Webber Real
Estate and Chase for a $500 million loan (the "Term Loan"). In connection with
the Merger, Patriot REIT anticipates that the entire $500 million of
availability under the Term Loan will be used to refinance substantially all of
the existing indebtedness of Wyndham and to finance payments to be made in
connection with the Merger and the Related Transactions and the Crow Assets
Acquisition. The Term Loan is expected to have an interest rate per annum equal
to LIBOR plus 1.75%. See "The Companies--Surviving Companies." In addition, it
is expected that the Patriot Companies' existing Revolving Credit Facility will
be used to retire that portion of existing indebtedness of Wyndham that is not
refinanced through the Term Loan. See "The Companies--Surviving Companies" and
"Risk Factors--Substantial Debt Obligations."
In connection with the Merger, Wyndham is commencing a tender offer for all
of the outstanding Wyndham Senior Subordinated Notes and also is soliciting
consents of a majority of the holders of the Wyndham Senior Subordinated Notes
to eliminate or modify certain covenants and other provisions contained in the
Wyndham Indenture so that any non-tendered Wyndham Notes do not restrict the
future financial and operating flexibility of Patriot REIT following the
Merger. The tender offer is being made on a "fixed spread basis" with actual
pricing to be determined two business days prior to the expiration of the
offer. The purchase price for the Wyndham Senior Subordinated Notes will be
determined by reference to the applicable fixed spread over the yield to
maturity of the applicable reference U.S. Treasury security. The tender offer
is conditioned on, among other things, the consummation of the Merger and the
receipt of a number of consents sufficient to amend the Wyndham Indenture.
Wyndham expects to fund the tender offer with cash from operations and cash
provided by the Term Loan. The consents would become effective upon
consummation of the tender offer. In addition, Patriot REIT's obligation to
consummate the Merger is conditioned upon the tender offer being consummated on
terms reasonably satisfactory to Patriot REIT. See "The Companies--Surviving
Companies--Surviving Companies Indebtedness."
Recent Developments
In September and October 1997, Patriot REIT acquired ten hotels (including an
approximate 50% controlling ownership interest in one of the hotels) from
entities affiliated with the Gencom American Hospitality group of companies
("Gencom") and CHC International, Inc. ("CHCI") for an aggregate purchase price
of approximately $237 million. Financing for the purchase of the hotels
consisted of cash from the Revolving Credit Facility and the issuance of Paired
Shares and paired OP Units in a private placement. In connection with the
foregoing transactions, Patriot REIT acquired the leasehold interests relating
to 8 of 25 hotels which were previously leased by CHC Lease Partners
(previously the largest independent lessee of Patriot REIT's hotels) for a
purchase price of approximately $53 million, and Patriot Operating Company
purchased an approximate 50% managing and controlling ownership interest in
GAH-II, L.P. ("GAH"), an affiliate of CHCI and Gencom, from affiliates of
Gencom for a purchase price of approximately $14 million. The transactions
described in the second and third sentences of this paragraph are hereinafter
collectively referred to herein as the "GAH Acquisition." Prior to the
acquisition of the leasehold interests, the management contracts with GAH
relating to the eight hotels were terminated. These transactions were financed
with cash, the issuance of paired OP Units in the Patriot Partnerships and the
issuance of preferred OP Units in the Patriot Operating Company Partnership.
See "The Companies--Surviving Companies--Recent Developments--The Gencom and
CHCI Transactions."
In addition, on September 30, 1997, Patriot REIT, Patriot Operating Company
and CHCI entered into the CHCI Merger Agreement providing for the merger of the
hospitality-related businesses of CHCI with and into
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Patriot Operating Company with Patriot Operating Company being the surviving
company (the "CHCI Merger"). Subject to regulatory approvals, CHCI's gaming
operations will be transferred to a new legal entity prior to the CHCI Merger
and such operations will not be a part of the transaction. It is anticipated
that the CHCI Merger will be consummated in the first or second quarter of
1998, although the precise timing is subject to certain conditions including
receipt of all necessary regulatory approvals. As a result of the CHCI Merger,
Patriot Operating Company, through its subsidiaries, will acquire the remaining
50% investment interest in GAH, the remaining 17 leases and 16 of the
associated management contracts related to the Patriot REIT hotels leased by
CHC Lease Partners, three management contracts related to Patriot REIT hotels
leased by Patriot Operating Company, 12 third-party management contracts, two
third-party lease contracts, the Grand Bay and Registry Hotels & Resorts
proprietary brand names and certain other hospitality management assets. See
"The Companies--Surviving Companies--Recent Developments--The Gencom and CHCI
Transactions."
Pursuant to the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of Operating Company Series A Preferred Stock and shares of Operating Company
Series B Preferred Stock. See "Description of Capital Stock--Patriot Operating
Company Series A Preferred Stock and Series B Preferred Stock." The formula for
determining the exchange ratio of CHCI Shares for Operating Company Series A
Preferred Stock and Operating Company Series B Preferred Stock is based on the
issuance of an aggregate of approximately 4,396,000 shares of Operating Company
Preferred Stock (based on an aggregate purchase value of approximately $102.2
million and a market price per Paired Share of $23.25), subject to reduction if
certain specified events occur and subject to increase representing adjustments
for dividends paid on Paired Shares after September 30, 1997. Generally, the
aggregate number of shares of Operating Company Preferred Stock that each
stockholder will have the right to receive pursuant to the CHCI Merger will
consist of, to the extent possible, an equal number of Operating Company Series
A Preferred Stock and Operating Company Series B Preferred Stock. The Unaudited
Pro Forma Financial Statements set forth in this Joint Proxy
Statement/Prospectus show the effects of the transactions consummated in
September and October 1997 with Gencom and CHCI, as well as the CHCI Merger, on
the Patriot Companies. See "Unaudited Pro Forma Combined Financial Statements."
There can be no assurance that the CHCI Merger will be consummated.
As part of the Gencom and CHCI transactions described above, Karim Alibhai,
the chief executive officer of Gencom, was appointed to the positions of
president, chief operating officer and director of Patriot Operating Company.
Patriot Operating Company has entered into an employment agreement with Mr.
Alibhai pursuant to which Mr. Alibhai serves as president and chief operating
officer of Patriot Operating Company for a term of three years. See "The
Companies--Surviving Companies--Recent Developments--The Gencom and CHCI
Transactions."
In addition, Patriot REIT, Patriot Operating Company and WHG Casinos &
Resorts Inc. ("WHG") entered into the WHG Merger Agreement dated September 30,
1997 providing for the merger of a newly formed subsidiary of Patriot Operating
Company with and into WHG with WHG being the surviving corporation (the "WHG
Merger"). As a result of the WHG Merger, Patriot Operating Company will acquire
the 570-room Condado Plaza Hotel & Casino, a 50% interest in the 389-room El
San Juan Hotel & Casino and a 23.3% interest in the 751-room El Conquistador
Resort & Country Club (the "El Conquistador"), all of which are located in
Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc., the
management company for the three hotels and the Las Casitas Village at the El
Conquistador. See "The Companies--Surviving Companies--Recent Developments--The
WHG Transaction." Under the terms of the WHG Merger Agreement, each share of
WHG Common Stock generally will be converted into the right to receive 0.784
Paired Shares, subject to certain adjustments related to the timing of the
closing of such transaction and the average closing price of a Paired Share
over the ten trading days immediately preceding the third business day prior to
the date on which the WHG stockholders' meeting to approve the WHG Merger is
convened (the "WHG Special Meeting Date"). In addition, each issued and
outstanding share of WHG Series B Convertible Preferred Stock will be
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converted into the right to receive that number of Paired Shares that the
holder of such share of WHG Series B Convertible Preferred Stock would have the
right to receive assuming conversion of such share, together with any accrued
and unpaid dividends thereon, into shares of WHG Common Stock immediately prior
to the effective time of the WHG Merger. The Unaudited Pro Forma Financial
Statements set forth in this Joint Proxy Statement/Prospectus show the effects
of the WHG Merger on the Patriot Companies. See "Unaudited Pro Forma Combined
Financial Statements." There can be no assurance that the WHG Merger will be
consummated.
Pursuant to a letter agreement dated September 30, 1997, the Patriot
Companies agreed to sell 1,000,033 Paired Shares to PaineWebber (the
"PaineWebber Direct Placement"). The purchase price (the "Direct Placement
Purchase Price") per Paired Share will be determined as follows: (a) if the
closing price of a Paired Share on the trading day immediately prior to the
date of settlement (the "Direct Placement Closing Price") is greater than
$25.875, then the Direct Placement Purchase Price will be $25.875 plus 50% of
the difference between the Direct Placement Closing Price and $25.875; and (b)
if the Direct Placement Closing Price is less than or equal to $25.875, then
the Direct Placement Purchase Price will be $25.875 less 50% of the difference
between $25.875 and the Direct Placement Closing Price. The Patriot Companies
currently are negotiating a definitive underwriting agreement with PaineWebber
and anticipate that the PaineWebber Direct Placement will be consummated on
November 13, 1997. See "The Companies--Surviving Companies--Recent
Developments--The PaineWebber Direct Placement."
Pursuant to a letter agreement dated September 30, 1997, the Patriot
Companies also agreed to sell 1,000,000 Paired Shares to LaSalle Advisors
Limited Partnership ("LaSalle"), as agent for certain clients of LaSalle (the
"LaSalle Direct Placement"), at a purchase price per Paired Share of $27.625,
or aggregate consideration of $27,625,000. The Patriot Companies are currently
negotiating a definitive stock purchase agreement with LaSalle and anticipate
that the LaSalle Direct Placement will be consummated on November 13, 1997. See
"The Companies--Surviving Companies--Recent Developments--The LaSalle Direct
Placement."
On September 30, 1997, the Patriot Companies exercised their right to call
2,000,033 OP Units in each of the Patriot Partnerships held by The Morgan
Stanley Real Estate Fund, L.P. and certain related entities (the "Morgan
Stanley Call"). The exercise price on the Morgan Stanley Call is $25.875 per
pair of OP Units. The Patriot Companies anticipate settling the Morgan Stanley
Call on November 13, 1997 with the proceeds of the PaineWebber Direct Placement
and the LaSalle Direct Placement. See "The Companies--Surviving Companies--
Recent Developments--The Morgan Stanley Call."
Depending on market conditions and other appropriate factors, the Patriot
Companies may seek additional debt or equity financing prior to the Effective
Time.
THE MEETINGS OF STOCKHOLDERS
Patriot Special Meetings
The Patriot Special Meetings will be held at the Wyndham Anatole Hotel
located at 2201 Stemmons Freeway, Dallas, Texas, on December 12, 1997. At the
Patriot Special Meetings, holders of shares of Patriot REIT Common Stock and
holders of shares of Patriot Operating Company Common Stock will consider and
vote upon three related proposals (the "Proposals"): (i) a proposal (the
"Merger Proposal") to approve the Merger Agreement and the Ratification
Agreements, and the Related Transactions, including, without limitation, the
Merger and the issuance of Paired Shares to holders of Wyndham Common Stock in
connection with the Merger and the issuance of Paired Shares and shares of
Series A Preferred Stock to CF Securities in connection with the Stock
Purchase, (ii) a proposal (the "Pairing Agreement Amendment Proposal") to amend
the Pairing Agreement (the "Pairing Agreement Amendment"), and (iii) proposals
(the "Patriot REIT Charter Amendment Proposal" and the "Patriot Operating
Company Charter Amendment Proposal" and collectively the "Patriot
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Charter Amendment Proposals") to amend and restate the Patriot Charters. The
affirmative vote of the holders of a majority of the outstanding shares of
Patriot REIT Common Stock entitled to vote thereon and the affirmative vote of
the holders of a majority of the outstanding shares of Patriot Operating
Company Common Stock entitled to vote thereon is required to approve each of
the Proposals. The Patriot REIT Special Meeting will be held at 9:30 a.m. local
time and the Patriot Operating Company Special Meeting will be held at 10:30
a.m. local time.
Holders of Paired Shares are entitled to one vote per share at each of the
Patriot Special Meetings. Only holders of Paired Shares at the close of
business on the Patriot Record Date will be entitled to notice of and to vote
at the Patriot Special Meetings. As of the Patriot Record Date, directors and
executive officers of Patriot REIT and their affiliates who own 911,780 shares
(representing 1.34% of the outstanding shares) have indicated that they intend
to vote all of such shares of Patriot REIT Common Stock for approval of the
Patriot REIT Proposals, and directors and executive officers of Patriot
Operating Company and their affiliates who own 911,780 shares (representing
1.34% of the outstanding shares) have indicated that they intend to vote all of
such shares of Patriot Operating Company Common Stock for approval of the
Patriot Operating Company Proposals. See "The Meetings of Stockholders--Patriot
Special Meetings."
THE PATRIOT REIT BOARD AND THE PATRIOT OPERATING COMPANY BOARD HAVE
UNANIMOUSLY APPROVED EACH OF THE PROPOSALS AND UNANIMOUSLY RECOMMEND THAT THE
RESPECTIVE STOCKHOLDERS OF PATRIOT REIT AND PATRIOT OPERATING COMPANY VOTE FOR
APPROVAL OF THE PROPOSALS. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE
MERGER" AND "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE PATRIOT COMPANIES."
Wyndham Special Meeting
The Wyndham Special Meeting will be held at the Wyndham Anatole Hotel located
at 2201 Stemmons Freeway, Dallas, Texas, on December 12, 1997, at 8:30 a.m.
local time. At the Wyndham Special Meeting, holders of Wyndham Common Stock
will consider and vote upon approval of the Merger Proposal. The affirmative
vote of the holders of two-thirds of the outstanding shares of Wyndham Common
Stock entitled to vote thereon is required to approve the Merger Proposal.
Holders of Wyndham Common Stock are entitled to one vote per share. Only
holders of Wyndham Common Stock at the close of business on the Wyndham Record
Date will be entitled to notice of and to vote at the Wyndham Special Meeting.
Pursuant to the Proxy Agreement, CF Securities and the Wyndham Management
Stockholders have agreed, subject to certain conditions, to vote all 9,447,745
shares and all 2,411,296 shares, respectively, of Wyndham Common Stock
beneficially owned by them, which shares will represent 43.7% and 11.2%,
respectively, of the total issued and outstanding shares of Wyndham Common
Stock as of the Wyndham Record Date, in favor of the Merger Proposal at the
Wyndham Special Meeting. See "The Meetings of Stockholders--Wyndham Special
Meeting" and "Certain Related Agreements--Proxy Agreement."
THE WYNDHAM BOARD HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT WYNDHAM STOCKHOLDERS VOTE FOR APPROVAL OF THE
MERGER PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF THE MERGER"
AND "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF
THE BOARD OF DIRECTORS OF WYNDHAM."
Conditional Nature of the Proposals
ALTHOUGH EACH OF THE PROPOSALS WILL BE VOTED ON SEPARATELY AT THE SPECIAL
MEETINGS, BECAUSE ADOPTION OF EACH OF THE PROPOSALS IS A CONDITION
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TO THE CLOSING OF THE MERGER, IF ANY OF THE PROPOSALS IS NOT ADOPTED, THE
PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF THE RELATED
TRANSACTIONS. IN THE EVENT THAT THE PATRIOT CHARTER AMENDMENT PROPOSALS OR THE
PAIRING AGREEMENT AMENDMENT PROPOSAL ARE APPROVED BUT THE MERGER PROPOSAL IS
NOT APPROVED, THE PATRIOT CHARTER AMENDMENT PROPOSALS OR THE PAIRING AGREEMENT
AMENDMENT PROPOSAL, AS APPLICABLE, WILL TAKE EFFECT, BUT THE REFERENCES TO THE
CHANGES IN THE OWNERSHIP LIMITS FROM 9.8% TO 8.0% CONTAINED IN THE RESTATED
CHARTERS AND THE PAIRING AGREEMENT AMENDMENT WILL NOT TAKE EFFECT. SEE "THE
MEETINGS OF STOCKHOLDERS--PATRIOT SPECIAL MEETINGS."
THE MERGER AND SUBSCRIPTION
Terms of the Merger and Subscription
On April 14, 1997, (i) Old Patriot REIT and Wyndham entered into the April
Merger Agreement pursuant to which Patriot REIT and Wyndham agreed to merge,
and (ii) Old Patriot REIT and CF Securities entered into the Stock Purchase
Agreement, pursuant to which Patriot REIT agreed to purchase up to 9,447,745
shares of Wyndham Common Stock from CF Securities. Following consummation of
the Cal Jockey Merger, on July 24, 1997, the Patriot Companies ratified the
April Merger Agreement, as required by the terms of such agreement, pursuant to
the Ratification Agreements. Additionally, on November 3, 1997, Patriot REIT,
Patriot Operating Company and Wyndham amended the April Merger Agreement
pursuant to the Merger Agreement Amendment to provide, among other things, that
neither Patriot REIT nor Wyndham will be required to consummate the Merger and
the Related Transactions in the event that stockholders of Patriot REIT and
Patriot Operating Company do not approve amendments to the Patriot Charters
reflecting, among other things, the reduction in the ownership limits contained
in the Excess Share Provisions from 9.8% to 8.0% (except in the case of Look-
Through Entities, for which the 9.8% limit will remain). Each of the Patriot
REIT Board, the Patriot Operating Company Board and the Wyndham Board has
approved the Merger Agreement, the Ratification Agreements and the Related
Transactions.
In the Merger, subject to certain adjustments and the right of Wyndham
stockholders to elect to receive cash as described below, each issued and
outstanding share of Wyndham Common Stock will be converted into the right to
receive 1.372 Paired Shares (subject to certain REIT qualification requirements
and the Excess Share Provisions discussed below). In the event, however, that
the Patriot Average Closing Price is less than $21.86 but greater than $20.87,
each such share of Wyndham Common Stock will be converted into the number of
Paired Shares equal to $30.00 divided by the Patriot Average Closing Price,
and, in the event that the Patriot Average Closing Price is less than $20.87,
each such share of Wyndham Common Stock will be converted into 1.438 Paired
Shares (the applicable number of Paired Shares into which each share of Wyndham
Common Stock will be converted, after adjustment for any stock dividend,
subdivision, reclassification, recapitalization, stock split or combination or
similar event effecting the Paired Shares or the shares of Wyndham Common
Stock, is referred to herein as the "Exchange Ratio"), provided, however, that
in the event that the Patriot Average Closing Price is less than $20.87,
Wyndham has the right, waivable by it, to terminate the Merger Agreement.
Pursuant to a Subscription Agreement between Wyndham and Patriot Operating
Company (the "Merger Subscription Agreement"), Wyndham has contracted (the
"Merger Subscription") for shares of Wyndham International Common Stock (the
"Merger Subscribed Shares") to be issued directly to Wyndham stockholders in
the Merger in an amount equal to the number of Paired Shares that will be
issued to Wyndham stockholders in the Merger. Immediately prior to the Merger,
Wyndham will fund the Merger Subscription and Wyndham will designate the
Wyndham stockholders as the recipients of the Merger Subscribed Shares, in
compliance with the Pairing Agreement. The Merger Subscription will be funded
on the basis of the fair market value of a Paired
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Share multiplied by five percent (the "Subscription Ratio"), the agreed upon
value of the Patriot Operating Company Common Stock as compared to the fair
market value of a Paired Share. The result of the Merger and the Merger
Subscription will be that Wyndham stockholders will have the right to receive a
Paired Share at the Exchange Ratio for each share of Wyndham Common Stock held
by them at the Effective Time. See "The Merger and Subscription--Terms of the
Merger and Subscription."
In lieu of receiving Paired Shares, Wyndham stockholders have the right (and
CF Securities has an equivalent right under the Stock Purchase Agreement) to
make a Cash Election to receive Cash Consideration in an amount per share equal
to the Cash Consideration Fair Market Value; provided, however, that the
maximum amount of cash to be paid to Wyndham stockholders and CF Securities
pursuant to Cash Elections will be a total of $100 million. In the event that
holders of Wyndham Common Stock and CF Securities elect to receive more than
$100 million in cash, such cash will be allocated on a pro rata basis among
such stockholders and CF Securities based upon the respective number of shares
of Wyndham Common Stock as to which they have elected to receive cash. Holders
of Wyndham Common Stock (other than CF Securities) who make a Cash Election
with respect to some or all of their shares of such stock and who receive Cash
Consideration on a pro rata basis will receive Paired Shares for their shares
of Wyndham Common Stock that are not converted into Cash Consideration. Under
such circumstances, CF Securities will receive a combination of Paired Shares
and Series A Preferred Stock (subject to certain REIT qualification limitations
that could, under certain limited circumstances, result in the payment of cash
in lieu of shares of Series A Preferred Stock) pursuant to the terms of the
Stock Purchase Agreement for its shares of Wyndham Common Stock which are not
converted into Cash Consideration. CF Securities has delivered to Patriot REIT
a Cash Election pursuant to which CF Securities has elected to receive Cash
Consideration with respect to all 9,447,745 shares of Wyndham Common Stock
beneficially owned by CF Securities. Because CF Securities has made a Cash
Election with respect to all of the shares of Wyndham Common Stock beneficially
owned by it, the maximum amount of cash available to be paid to other holders
of Wyndham Common Stock in the Merger is expected to be approximately
$56,300,000. If no other stockholders of Wyndham make a Cash Election, CF
Securities will receive the entire $100 million of cash available for Cash
Elections. See "--The Stock Purchase."
The Restated Charters will contain provisions (the "Excess Share Provisions")
that provide that no person or entity (other than certain "Look-Through
Entities") may own, be deemed to own by virtue of certain attribution rules of
the Code or be deemed to beneficially own pursuant to the applicable provisions
of the Exchange Act in excess of 8.0% (9.8% in the case of any person that is a
Look-Through Entity) of the outstanding shares of Patriot REIT Common Stock or
Wyndham International Common Stock or any class or series of preferred stock of
Patriot REIT or Wyndham International (collectively, the "Equity Stock"). If
any holder of Wyndham Common Stock would receive in the Merger and the Merger
Subscription a number of Paired Shares which would cause such holder or any
other person or entity to own, or be deemed to own, Paired Shares in excess of
the applicable ownership limit, then such holder shall acquire no right or
interest in such number of Paired Shares that would cause such holder or any
other person or entity to exceed the applicable ownership limit, and, in lieu
of receiving those Paired Shares which would cause the applicable ownership
limit to be exceeded (the "Excess Paired Shares"), such holder's Excess Paired
Shares shall be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust for the benefit of the Beneficiary
effective as of the Trading Day prior to the Effective Time in accordance with
the Excess Share Provisions. See "Description of Capital Stock--Excess Stock"
and "--Certain Provisions of the Restated Charters and Restated Bylaws--
Restrictions on Ownership and Transfer."
In the Merger, each outstanding Paired Share will remain outstanding and,
following the Merger, will automatically, without any action on the part of the
stockholders of Patriot REIT and Patriot Operating Company, represent the same
number of Paired Shares.
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The Stock Purchase
As a result of certain provisions of the Code applicable to REITs like
Patriot REIT, the shares of Wyndham Common Stock beneficially owned by CF
Securities cannot be converted solely into Paired Shares pursuant to the terms
of the Merger Agreement. Accordingly, in connection with the execution of the
Merger Agreement in April 1997, Patriot REIT and CF Securities entered into the
Stock Purchase Agreement, which generally provides for the issuance of a
combination of Paired Shares and shares of Series A Preferred Stock to CF
Securities. In connection with the Merger and the Related Transactions, the
Patriot REIT Board and the Patriot Operating Company Board have deemed it
advisable and in the best interests of the stockholders of Patriot REIT and
Patriot Operating Company that the ownership limit contained in the Restated
Charters be waived, as permitted by the Restated Charters, to permit CF
Securities to receive a combination of Paired Shares and shares of Series A
Preferred Stock that would exceed such ownership limit. In addition to the
waiver of such ownership limit, the Patriot REIT Board and the Patriot
Operating Company Board determined that the current ownership limit contained
in the Patriot REIT Charter and the Patriot Operating Company Charter should be
decreased to the ownership limit contained in the Restated Charters in order to
reduce the risk that the actual or constructive ownership of Equity Stock by an
individual or entity could cause Patriot REIT to fail to maintain its
qualification as a REIT. See "The Merger and Subscription--Terms of the Stock
Purchase," "The Merger Agreement" and "Description of Capital Stock--Certain
Provisions of the Restated Charters and Restated Bylaws."
Pursuant to the Stock Purchase Agreement, Patriot REIT has agreed to purchase
from CF Securities, and CF Securities has agreed to sell to Patriot REIT, up to
9,447,745 shares of Wyndham Common Stock beneficially owned by CF Securities,
which stock represents approximately 43.7% of the total issued and outstanding
Wyndham Common Stock as of November 3, 1997. Immediately prior to the Closing
Date, Patriot REIT and Patriot Operating Company will cause to be issued to CF
Securities a combination of (i) Paired Shares, (ii) shares of Series A
Preferred Stock, and (iii) if applicable, cash, as follows. Immediately prior
to the Closing Date, Patriot REIT and Patriot Operating Company will issue to
CF Securities the number of Paired Shares and cash that CF Securities would
have received pursuant to the Merger if CF Securities were a stockholder of
Wyndham at the effective time of the Merger and had made a Cash Election with
respect to all 9,447,745 shares of Wyndham Common Stock beneficially owned by
it. The number of Paired Shares to be issued to CF Securities will be reduced
(after taking into account the Cash Consideration to be paid to CF Securities)
to the extent necessary to comply with certain REIT qualification requirements
and the Excess Share Provisions. To the extent that such REIT qualification
requirements and the Excess Share Provisions limit the number of Paired Shares
otherwise issuable to CF Securities, Patriot REIT will issue to CF Securities a
number of shares of Series A Preferred Stock (subject to certain REIT
qualification requirements and the Excess Share Provisions) such that the
aggregate number of Paired Shares and shares of Series A Preferred Stock issued
to CF Securities equals the number of Paired Shares that otherwise would have
been issued to CF Securities in the Merger but for the application of such REIT
qualification requirements and the Excess Share Provisions. However, if the
number of shares of Series A Preferred Stock issuable to CF Securities should
also be limited by certain REIT qualification requirements and the Excess Share
Provisions, then Patriot REIT will pay to CF Securities cash in lieu of that
number of shares of Series A Preferred Stock that are not issuable as a result
of such REIT qualification requirements and the Excess Share Provisions in an
amount equal to the Cash Consideration Fair Market Value for each such share.
Further, in the event that the product of the number of Paired Shares to be
issued to CF Securities at the Closing Date multiplied by the Cash
Consideration Fair Market Value is less than $50 million, CF Securities may
terminate the Stock Purchase Agreement, and, if Patriot REIT reasonably
concludes that there is a realistic possibility that such cash in lieu of
Series A Preferred Stock would exceed $25 million, Patriot REIT may terminate
the Stock Purchase Agreement. See "The Stock Purchase Agreement--Termination."
Dividends on the Series A Preferred Stock will be paid in the same amount per
share and to the same extent as, if and when paid on the Paired Shares. In
addition, each share of Series A Preferred Stock (i) will be entitled to one
vote per share, voting together with the shares of Patriot REIT Common Stock,
on any matter submitted for a vote of the Patriot REIT stockholders, (ii) will
be convertible at any time into Paired Shares on a one-for-
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one basis (subject to applicable REIT qualification requirements and the Excess
Share Provisions), and (iii) will effectively rank pari passu with the Paired
Shares upon any liquidation, dissolution or winding up of the Patriot
Companies. See "The Merger and Subscription--Terms of the Stock Purchase" and
"Description of Capital Stock--Series A Preferred Stock."
Pursuant to a Subscription Agreement to be entered into between CF Securities
and Patriot Operating Company prior to the closing of the Stock Purchase (the
"Stock Purchase Subscription Agreement"), CF Securities will, in connection
with the Stock Purchase, subscribe (the "Stock Purchase Subscription") for
shares of Patriot Operating Company Common Stock (the "Stock Purchase
Subscribed Shares") to be issued directly to CF Securities pursuant to the
Stock Purchase in an amount equal to the number of Paired Shares that will be
issued to CF Securities pursuant to the Stock Purchase. The result of the Stock
Purchase and the Stock Purchase Subscription will be that CF Securities will
receive Paired Shares at the Exchange Ratio for each share of Wyndham Common
Stock beneficially owned by it at the Stock Purchase Closing, other than those
shares of Wyndham Common Stock as to which CF Securities receives shares of
Series A Preferred Stock (or, in the limited circumstances described above,
cash in lieu of Series A Preferred Stock) at the Stock Purchase Closing.
As required by the Stock Purchase Agreement, CF Securities has delivered to
Patriot REIT a Cash Election pursuant to which CF Securities has elected to
receive Cash Consideration with respect to 9,447,745 of the shares of Wyndham
Common Stock beneficially owned by CF Securities (representing all of the
shares of Wyndham Common Stock beneficially owned by CF Securities). Because CF
Securities has made a Cash Election with respect to all of the shares of
Wyndham Common Stock owned by CF Securities, the maximum amount of cash
available to be paid to other holders of Wyndham Common Stock in the Merger is
expected to be approximately $56,300,000 million. If no other stockholders of
Wyndham make a Cash Election, CF Securities will receive the entire $100
million of cash available for Cash Elections.
CROW ASSETS ACQUISITION
In connection with the Merger, the Patriot REIT Partnership has also entered
into the Omnibus Purchase and Sale Agreement and eleven individual purchase and
sale agreements with the Crow Family Entities, providing for the Patriot REIT
Partnership's acquisition of 11 full-service Wyndham-branded hotels with 3,072
rooms for an aggregate purchase price of approximately $331.7 million in cash
plus up to $14 million in additional cash consideration if two of the hotels
meet certain cash flow targets. The Crow Assets Acquisition is subject to
various closing conditions, including approval of the Merger by the
stockholders of Patriot REIT, Patriot Operating Company and Wyndham (which
condition may be waived by such parties). The following hotels are subject to
the Crow Assets Acquisition: the Wyndham Bel Age Hotel, the Wyndham Franklin
Plaza Hotel, the Wyndham La Guardia Garden Hotel, the Wyndham Milwaukee Theatre
District Hotel, the Wyndham Northwest Chicago Hotel, the Wyndham Las Colinas
Garden Hotel, the Wyndham Novi Garden Hotel, the Wyndham Pleasanton Garden
Hotel, the Wyndham Wood Dale Garden Hotel, the Wyndham Riverfront Hotel and the
Wyndham Palm Springs Hotel. With the exception of the Milwaukee Hotel, the Crow
Assets Acquisition is expected to be consummated contemporaneously with the
closing of the Merger. With respect to the Milwaukee Hotel, consents to the
sale of such hotel must be obtained from the mortgage lender and the ground
lessor. As a result, Patriot REIT currently expects that the purchase of the
Milwaukee Hotel will be delayed by up to 24 months.
Under the terms of the Omnibus Purchase and Sale Agreement, the Patriot REIT
Partnership also has certain rights of first refusal with respect to the
Wyndham Bristol Hotel and any of the hotels subject to the Omnibus Purchase and
Sale Agreement (other than the Milwaukee Hotel) that are undeliverable by the
Crow Family Entities at the closing of the Crow Assets Acquisition. Pursuant to
the Merger Agreement, the obligation of Patriot REIT to consummate the Merger
is subject to the condition, waivable by Patriot REIT, that the closing of the
transactions contemplated by the Omnibus Purchase and Sale Agreement shall have
become effective subject only to the Merger becoming effective at the Effective
Time. See "The Omnibus Purchase and Sale Agreement."
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REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS
The Patriot Companies
Each of the Patriot REIT Board and the Patriot Operating Company Board
believes that the Merger and the Related Transactions are fair to and in the
best interests of Patriot REIT and Patriot Operating Company and their
respective stockholders. EACH OF THE PATRIOT REIT BOARD AND THE PATRIOT
OPERATING COMPANY BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
RELATED TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT
REIT AND PATRIOT OPERATING COMPANY, RESPECTIVELY, VOTE "FOR" THE PROPOSALS. The
material factors that each of the Patriot REIT Board and the Patriot Operating
Company Board considered in reaching the foregoing conclusions were its belief
that: (i) the Merger would maximize the benefits of the paired share ownership
structure allowing the Patriot Companies to become a nationally branded, fully
integrated hotel company, while maintaining Patriot REIT's tax status as a
REIT; (ii) the Patriot Companies would acquire the marketing power of a
nationally and internationally-recognized hotel brand; (iii) the Patriot
Companies would obtain the benefit of an experienced hotel management
organization; (iv) the Merger will significantly increase the amount of
property owned by the Patriot Companies; (v) the Merger is expected to be
accretive to the Patriot Companies' funds from operations ("FFO") per share in
future periods and may also have a favorable effect over time on the FFO
multiple at which Paired Shares are traded by creating a nationally branded,
fully integrated hotel company within a unique tax-advantaged structure; and
(vi) following the Merger the Patriot Companies would enjoy increased market
capitalization, increased liquidity and greater financial strength. In deciding
to approve the Merger Agreement and the Related Transactions, and in making its
recommendation that stockholders of Patriot REIT and Patriot Operating Company
approve the Merger Proposal, each of the Patriot REIT Board and the Patriot
Operating Company Board considered, among other things, the analyses and
presentations of PaineWebber, financial advisor for the Patriot Companies,
including PaineWebber's opinion to the effect that, as of the date of such
opinion, and subject to the considerations set forth in such opinion, the
Merger Consideration was fair from a financial point of view to the
stockholders of Patriot REIT and Patriot Operating Company. See "The Merger and
Subscription --Reasons for the Merger and the Related Transactions;
Recommendations of the Boards of Directors of the Patriot Companies" and "--
Opinion of Financial Advisor to the Patriot Companies."
Wyndham
The Wyndham Board believes that the Merger and the Related Transactions are
fair to and in the best interests of Wyndham and its stockholders. THE WYNDHAM
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE RELATED
TRANSACTIONS AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF WYNDHAM VOTE "FOR"
THE MERGER PROPOSAL. Among the factors that the Wyndham Board considered in
reaching the foregoing conclusions were the following: (i) the unanimous
recommendation by the Wyndham Special Committee that the Wyndham Board approve
the Merger Agreement, which was made by the Wyndham Special Committee after its
receipt of the oral opinion of Merrill Lynch on April 13, 1997, which opinion
was subsequently confirmed by a written opinion dated April 14, 1997, to the
effect that as of such dates and based on the assumptions made, matters
considered and limits of review set forth in the written opinion, the Merger
Consideration to be received by the holders of Wyndham Common Stock (other than
CF Securities) in the Merger was fair to such stockholders from a financial
point of view, (ii) the ability of Wyndham stockholders through the Merger to
share the value inherent in the paired share structure, which will allow the
Patriot Companies, in combination with Wyndham, to become a nationally branded,
fully integrated hotel company; (iii) the historical market prices and recent
trading activity of Wyndham Common Stock, and in particular, the fact that the
Exchange Ratio would enable Wyndham stockholders (subject to their right to
make a Cash Election) to receive Paired Shares in the Merger at a significant
premium over historical and recent market prices of the Wyndham Common Stock;
(iv) the financial terms of the Merger, including the structure as a tax-free
reorganization, the Exchange Ratio characteristic that places no upper limit
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on the Merger Consideration to be received for each share of Wyndham Common
Stock, while at the same time assuring that the Merger Consideration will not
be less than $30.00 per share unless the Patriot Average Closing Price is less
than $20.87, and the flexibility afforded to Wyndham stockholders by the right
to make a Cash Election in a transaction otherwise designed to qualify as a
tax-free reorganization; (v) Wyndham's business, financial condition and
prospects, and in particular, the significant consolidation and realignment
occurring in the hospitality industry and its view that Wyndham must grow
rapidly or become part of a larger company to achieve greater brand awareness
and access to capital; (vi) the business, financial condition and prospects of
the Patriot Companies; (vii) the increased market capitalization, increased
liquidity and greater financial strength of the Patriot Companies that the
Wyndham stockholders would enjoy following the Merger; (viii) the provisions of
the Merger Agreement that permit the Wyndham Board to receive unsolicited
inquiries and proposals regarding other potential transactions, to negotiate
and provide information to third parties that make, or express a bona fide
intention to make, such a proposal, under certain circumstances; (ix) the
continuing role of members of Wyndham management in the Patriot Companies after
the Merger; and (x) Wyndham's discussions with other companies concerning a
possible business combination transaction. In deciding to approve the Merger
Agreement and the Related Transactions, and in making its recommendation that
stockholders of Wyndham approve the Merger Proposal, the Wyndham Board also
considered, among other things, the financial presentation and oral opinion of
Smith Barney, Wyndham's financial advisor, delivered to the Wyndham Board at
its April 13, 1997 meeting (which opinion was subsequently confirmed by
delivery of a written opinion dated April 14, 1997, the date of the Merger
Agreement) to the effect that, as of the date of such opinion and based upon
and subject to certain matters stated therein, the Merger Consideration was
fair, from a financial point of view, to the holders of Wyndham Common Stock.
In making its recommendation that the Wyndham Board approve the Merger
Agreement and the Related Transactions, the Wyndham Special Committee
considered, among other things, the opinion, analyses and presentations of
Merrill Lynch, financial advisor to the Wyndham Special Committee, including
Merrill Lynch's oral opinion rendered on April 13, 1997, which opinion was
confirmed by a written opinion dated April 14, 1997, to the effect that, as of
such dates and based upon the assumptions made, matters considered and limits
of review set forth in the written opinion, the Merger Consideration to be
received by the holders of Wyndham Common Stock (other than CF Securities) in
the Merger was fair to such stockholders from a financial point of view. See
"The Merger and Subscription--Reasons for the Merger; Recommendation of the
Board of Directors of Wyndham," "--Reasons for the Merger and the Related
Transactions; Recommendation of the Wyndham Special Committee" and "--Opinions
of Wyndham's Financial Advisors."
For a discussion of the circumstances surrounding the Merger and the reasons
for the recommendations of the Board of Directors of each of Patriot REIT,
Patriot Operating Company and Wyndham and the Wyndham Special Committee, see
"The Merger and Subscription--Background of the Merger," "--Reasons for the
Merger and the Related Transactions; Recommendations of the Boards of Directors
of the Patriot Companies," "--Reasons for the Merger and the Related
Transactions; Recommendation of the Board of Directors of Wyndham" and "--
Reasons for the Merger and the Related Transactions; Recommendation of the
Wyndham Special Committee."
OPINIONS OF FINANCIAL ADVISORS
The Patriot Companies
PaineWebber has acted as financial advisor to the Patriot Companies and has
rendered to the Patriot REIT Board and the Patriot Operating Company Board its
opinion to the effect that, as of the date of such opinion, based on
PaineWebber's review and subject to the considerations and limitations set
forth in such opinion, the Merger Consideration was fair from a financial point
of view to the stockholders of Patriot REIT and Patriot Operating Company. A
copy of the full text of the written opinion of PaineWebber, which sets forth
the assumptions made, procedures followed, matters considered and limits of its
review, is attached as Annex H to this Joint Proxy Statement/Prospectus, and
should be read carefully in its entirety. The opinion of PaineWebber is
addressed to the Boards of Directors of Patriot REIT and Patriot Operating
Company and addresses only the
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fairness from a financial point of view of the Merger Consideration and does
not constitute a recommendation to any holder of Paired Shares as to how such
holder should vote at the Patriot Special Meetings. See "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies."
Wyndham
Smith Barney has acted as financial advisor to Wyndham in connection with the
Merger and has delivered to the Wyndham Board a written opinion dated April 14,
1997 to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the Merger Consideration was fair,
from a financial point of view, to the holders of Wyndham Common Stock. A copy
of the full text of the written opinion of Smith Barney dated April 14, 1997,
which sets forth the assumptions made, matters considered and limitations on
the scope of its review, is attached as Annex I to this Joint Proxy
Statement/Prospectus, and should be read carefully in its entirety. The opinion
of Smith Barney is directed to the Wyndham Board and relates only to the
fairness of the Merger Consideration from a financial point of view, does not
address any other aspect of the Merger or the Related Transactions and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote at the Wyndham Special Meeting. See "The Merger and Subscription--
Opinions of Wyndham's Financial Advisors--Smith Barney."
In addition, on April 13, 1997, Merrill Lynch delivered an oral opinion,
which opinion was confirmed in a written opinion dated April 14, 1997, to the
Wyndham Special Committee to the effect that, as of such dates, and based upon
the assumptions made, matters considered and limits of review set forth in the
written opinion, dated April 14, 1997, the Merger Consideration to be received
by the holders of Wyndham Common Stock (other than CF Securities) in the Merger
was fair to such stockholders from a financial point of view. The opinion of
Merrill Lynch was intended for the use and benefit of the Wyndham Special
Committee, was directed only to the fairness of the Merger Consideration to the
holders of Wyndham Common Stock (other than CF Securities) from a financial
point of view, and does not constitute a recommendation to any stockholder as
to how such holder should vote with respect to the Merger Proposal or any
transactions related thereto or as to whether any holder should elect to
receive Paired Shares or the Cash Consideration. A copy of the full text of the
written opinion of Merrill Lynch, which sets forth the assumptions made,
matters considered and limitations on the scope of its review, is attached as
Annex J to this Joint Proxy Statement/Prospectus, and should be read in its
entirety. See "The Merger and Subscription--Opinions of Wyndham's Financial
Advisors--Merrill Lynch."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger and Subscription
Goodwin, Procter & Hoar llp, counsel for Patriot REIT, has delivered its
opinion to Patriot REIT and Wyndham substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion, the
Merger and the Stock Purchase will be treated for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. Accordingly, no gain or loss will be recognized by Wyndham as a result of
the Merger. In general, stockholders of Wyndham will recognize gain, but not
loss, on the exchange of shares of Wyndham Common Stock for Paired Shares in an
amount equal to the lesser of (a) the amount of cash and the fair market value
of the Wyndham International Common Stock received by the stockholder in
exchange therefor or (b) the amount by which the fair market value of the
Paired Shares and any cash received in the exchange exceeds the stockholder's
adjusted tax basis in the Wyndham Common Stock exchanged therefor. See "Certain
Federal Income Tax Considerations--Tax Consequences of the Merger."
REIT Qualification
If certain detailed conditions imposed by the REIT provisions of the Code are
met, entities such as Patriot REIT that invest primarily in real estate and
that otherwise would be treated for federal income tax purposes as
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corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., taxation at both the corporate and stockholder levels) that
generally results from the use of a corporate form. Prior to the consummation
of the Merger, Patriot REIT has operated and will operate in a manner intended
to allow it to qualify as a REIT. Following the Merger, Patriot REIT intends to
operate in a manner so that it will continue to qualify as a REIT. If Patriot
REIT fails to qualify as a REIT in any taxable year, Patriot REIT would be
subject to federal income taxation as if it were a domestic corporation, and
could be subject to potentially significant tax liabilities which could reduce
or eliminate cash available to distribute to stockholders. Unless entitled to
relief under certain Code provisions, Patriot REIT also would be disqualified
from treatment as a REIT for the four taxable years following the year during
which qualification was lost. Moreover, failure of Old Patriot REIT to have
qualified as a REIT also could disqualify Patriot REIT as a REIT and/or subject
Patriot REIT to significant tax liabilities.
Goodwin, Procter & Hoar llp, counsel for Patriot REIT, has rendered an
opinion regarding (i) Patriot REIT's qualification as a REIT for periods prior
to the Merger and (ii) Patriot REIT's ability to qualify as a REIT following
the Merger. The opinion of Goodwin, Procter & Hoar llp has been filed as an
exhibit to the Registration Statement. This opinion is based on certain
assumptions and representations from Patriot REIT regarding Old Patriot REIT's
and Patriot REIT's compliance with the requirements for qualification as a
REIT, and is not binding on the Internal Revenue Service (the "IRS").
Accordingly, no assurance can be given that the IRS will not challenge the
status of Patriot REIT as a REIT prior to the Merger or the status of Patriot
REIT as a REIT following the Merger. See "Certain Federal Income Tax
Considerations--REIT Qualification."
In the event that Patriot REIT recognizes, during the ten-year period
following the Merger, any "built-in gain" attributable to assets acquired from
Wyndham, Patriot REIT will be subject to tax on such recognized gain at the
highest corporate rate notwithstanding its status as a REIT. In addition,
Patriot REIT generally will have to distribute 95% of the excess of such
recognized built-in gain over the taxes paid to maintain its qualification as a
REIT. See "Certain Federal Income Tax Consequences--REIT Qualifications--Built-
In Gain Tax."
Taxation of Wyndham International; Non-Controlled Subsidiaries
Patriot Operating Company has not qualified as a REIT prior to the Merger and
is subject to Federal income tax on its taxable income at corporate rates.
Neither Wyndham International nor Wyndham Management Corporation ("WMC") will
qualify as a REIT, and each will be subject to federal income tax on its
taxable income at corporate rates. Two of Patriot REIT's hotels are held in
corporate subsidiaries of the Patriot REIT Partnership, and these subsidiaries
also will be subject to federal income tax on its taxable income at corporate
rates. See "Certain Federal Income Tax Considerations--Taxation of Wyndham
International; Non-Controlled Subsidiaries."
ACCOUNTING TREATMENT
Patriot REIT will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. See "The Merger and Subscription--
Accounting Treatment."
CERTAIN RESALE RESTRICTIONS
All Paired Shares received by Wyndham stockholders in the Merger and the
Merger Subscription will be freely transferable as Paired Shares, except that
Paired Shares received by persons who are deemed to be "affiliates" (as such
term is defined under the Securities Act) of Wyndham at the time of the Wyndham
Special Meeting may be resold by them only in certain permitted circumstances.
Substantially all of the Paired Shares issued to affiliates of Wyndham in
connection with the Merger and the Stock Purchase will be subject to a
registration rights agreement entitling the holders of such shares to certain
"demand" and "piggyback"
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registration rights (although the ability of CF Securities to transfer Paired
Shares may be restricted under certain limited circumstances under the terms of
the Standstill Agreement). In accordance with their obligations under the
Registration Rights Agreement, the Patriot Companies have registered for sale
to the public the Paired Shares to be received by such affiliates (including
Paired Shares that are issuable upon conversion of shares of Series A Preferred
Stock) pursuant to the Stock Purchase Agreement and the Merger Agreement in the
Registration Statement relating to this Joint Proxy Statement/Prospectus. See
"The Merger and the Subscription--Interests of Certain Officers, Directors and
Stockholders of Wyndham--Registration Rights Agreement" and "--Certain Resale
Restrictions."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot REIT, Patriot Operating
Company and Wyndham to consummate the Merger that, prior to the Effective Time,
the parties obtain the approval for the listing on the NYSE of the Paired
Shares issuable in the Merger and the Stock Purchase, subject to official
notice of issuance. Following the Merger, the Paired Shares will continue to
trade on the NYSE under the symbol "PAH." See "The Merger and Subscription--New
York Stock Exchange Listing" and "The Merger Agreement--Conditions to the
Merger."
APPRAISAL RIGHTS
Under the DGCL, stockholders of Patriot REIT and Patriot Operating Company
are not entitled to appraisal rights in connection with the Merger or the
Related Transactions. See "Risk Factors--Appraisal Rights," "The Meetings of
Stockholders" and "The Merger and Subscription--Appraisal Rights."
Under the DGCL, under certain limited circumstances the stockholders of
Wyndham may be entitled to appraisal rights in connection with the Merger. See
"Risk Factors--Appraisal Rights," "The Meetings of Stockholders" and "The
Merger and Subscription--Appraisal Rights."
PROXY AGREEMENT
Pursuant to the Proxy Agreement, CF Securities and the Wyndham Management
Stockholders, which, as of the date of this Joint Proxy Statement/Prospectus,
beneficially own or have the right to vote an aggregate of 9,447,745 and
2,411,296 shares, respectively, (or 43.7% and 11.2%, respectively) of the total
outstanding shares of Wyndham Common Stock as of the Wyndham Record Date, have
agreed, subject to certain conditions, to vote CF Securities' and the Wyndham
Management Stockholders' shares of Wyndham Common Stock in favor of the
approval of the Merger Proposal to be voted upon at the Wyndham Special
Meeting, against any Acquisition Proposal and in certain other specified ways
intended to support the consummation of the Merger. In addition, pursuant to
the Proxy Agreement, CF Securities and the Wyndham Management Stockholders have
agreed that they will not and will not permit any of their affiliates (other
than Wyndham to the extent permitted by the Merger Agreement) to submit,
initiate or encourage inquiries or proposals made by any person or entity with
respect to Wyndham that constitute or would reasonably be expected to lead to
an Acquisition Proposal and from taking certain other actions. Subject to
certain conditions and exceptions, CF Securities and the Wyndham Management
Stockholders are also not permitted to offer for sale, tender, transfer,
encumber or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the disposition of, or take
certain other actions with respect to, any or all of their Wyndham Common
Stock. The covenants and agreements in the Proxy Agreement terminate upon the
expiration of the period (the "Proxy Term") ending on the earliest to occur of
(i) the termination of the Merger Agreement by Wyndham to enter into a Superior
Proposal Agreement, (ii) the Effective Time, (iii) the termination of the
Merger Agreement due to the failure of the Merger to be consummated by December
16, 1997, or (iv) 30 days after termination of the Merger Agreement for any
other reason, except that, in the case of the Wyndham Management Stockholders
only, if the Merger Agreement is terminated on account of a Superior Proposal
Agreement, certain covenants of the Wyndham
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Management Stockholders will survive for limited time periods specified in the
Proxy Agreement. See "Certain Related Agreements--Proxy Agreement."
TRANSFER RESTRICTION AGREEMENT
Pursuant to the Transfer Restriction Agreement between Bedrock, a significant
stockholder of Wyndham, and Old Patriot REIT, Bedrock may not sell or otherwise
dispose of its 2,276,055 shares of Wyndham Common Stock (representing 10.5% of
the total outstanding shares of Wyndham Common Stock as of the Wyndham Record
Date) without the consent of Patriot REIT, which consent may not be
unreasonably withheld or delayed. The Transfer Restriction Agreement, which is
intended to aid in assuring the anticipated tax treatment of the Merger,
terminates upon the expiration of the Proxy Term. See "Certain Related
Agreements--Transfer Restriction Agreement."
STANDSTILL AGREEMENT
Pursuant to the Standstill Agreement, CF Securities agreed that, with certain
exceptions, from and after the Effective Time and until the date which is 18
months following the first date on which any two of Paul A. Nussbaum, James D.
Carreker and Anne L. Raymond no longer actively serve as senior executive
officers of Patriot REIT and/or Wyndham International (the "Standstill Term"),
neither CF Securities nor any of its affiliates will, without the prior written
consent of Patriot REIT, directly or indirectly purchase or otherwise acquire,
agree to acquire or become the beneficial owner of, any additional voting
securities or securities convertible into or exchangeable for, or which upon
redemption thereof could result in CF Securities receiving any voting
securities of Patriot REIT, Wyndham International, the Patriot REIT Partnership
or the Patriot Operating Company Partnership ("Voting Stock"). In addition, CF
Securities agreed that, with certain exceptions, until the expiration of the
Standstill Term, neither it nor any of its affiliates will, without the prior
written consent of Patriot REIT, directly or indirectly transfer any shares of
Voting Stock owned by them as of the date of the Standstill Agreement or
acquired thereafter. Pursuant to the Standstill Agreement, CF Securities agreed
that, during the Standstill Term, neither it nor any of its affiliates will
directly or indirectly, or will solicit, request, advise, assist or encourage
others directly or indirectly to, take certain actions with respect to Patriot
REIT or Wyndham International or any voting stock of Patriot REIT or Wyndham
International. See "Certain Related Agreements--Standstill Agreement."
VOTING AGREEMENTS
Pursuant to the Voting Agreements, the Post-Merger Management Stockholders
agreed that, following the Merger and until October 1, 2007, whenever there
shall be submitted to the stockholders of Patriot REIT or Wyndham International
nominees for election to the Patriot REIT Board or the Wyndham International
Board, as the case may be, the Post-Merger Management Stockholders will vote,
or to cause to be voted, all of the shares of Patriot REIT Common Stock and
Wyndham International Common Stock then held by the Post-Merger Management
Stockholders, whether beneficially or of record, in favor of such nominees
designated by Patriot REIT or Wyndham International or the Patriot REIT Board
or Wyndham International Board, as the case may be, and, unless otherwise
requested by Patriot REIT or Wyndham International, as the case may be, not in
favor of any other nominees. In addition, the Voting Agreements provide for
Patriot REIT and Wyndham International to nominate a designee of CF Securities
as a director thereof as long as the ownership by CF Securities of securities
of Patriot REIT and Wyndham International is maintained at or above certain
specified levels. See "Certain Related Agreements--Voting Agreements."
AGREEMENT WITH RESPECT TO AMENDMENTS
Wyndham, CF Securities and a Crow Family Entity (on behalf of the parties to
the Omnibus Purchase and Sale Agreement) have entered into an agreement
pursuant to which they have agreed not to amend the material
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terms of the Merger and Related Transactions and the Crow Assets Acquisition
without each other's prior written consent.
SUMMARY RISK FACTORS
In considering whether to approve the Proposals, stockholders of Patriot
REIT, Patriot Operating Company and Wyndham should consider, in addition to
the other information in this Joint Proxy Statement/Prospectus, the matters
discussed under "Risk Factors." Such matters include:
. Risks associated with the Patriot Companies' rapid growth since the Initial
Offering, and the Patriot Companies' ability to manage their operations
following the Merger and the Crow Assets Acquisition. Based upon the
respective portfolios of the Patriot Companies and Wyndham at November 3,
1997, after giving effect to the Merger and the Related Transactions, the
Crow Assets Acquisition and the termination of Wyndham's management
relationship with Homegate, the Patriot Companies will have an aggregate
hotel portfolio, including owned, managed, leased and franchised hotels,
consisting of 190 hotels in operation, with an aggregate of over 45,700
rooms. Such portfolio will consist of 113 owned hotels, 13 hotels leased
from independent third parties, 56 managed hotels and 8 franchised hotels.
The Patriot Companies' aggregate portfolio following the Merger would
represent an increase in the Patriot Companies' rooms portfolio of over
41,500 rooms since the Initial Offering. The integration of departments,
systems and procedures of the Patriot Companies with those being acquired
in connection with the Merger and the Related Transactions, the Crow Assets
Acquisition and the CHCI Merger and the WHG Merger presents a significant
management challenge, and any failure to integrate such companies and
properties into the Patriot Companies' management and operating structures
could have a material adverse effect on the results of operations and
financial condition of the Patriot Companies. See "Risk Factors--Failure to
Manage Rapid Growth and Integrate Operations Following the Merger."
. Possible adverse consequences to the stockholders of the Patriot Companies
as a result of (i) the increase in the amount of pro forma combined total
indebtedness of the Patriot Companies following the Merger to approximately
$1.5 billion as of June 30, 1997 (including the $100 million of Cash
Consideration to be paid by Patriot REIT pursuant to Cash Elections), as
compared to pro forma combined total indebtedness of the Patriot Companies
of approximately $766.4 million as of June 30, 1997, and (ii) the increase
in the pro forma ratio of combined debt to total market capitalization of
the Patriot Companies following the Merger to 28.7%. The calculation of the
pro forma ratio of combined debt to total market capitalization is based on
a $31 1/2 closing price of the Paired Shares on November 3, 1997. See "Risk
Factors--Substantial Debt Obligations."
. The Merger and the Related Transactions have a dilutive effect on net
income per share and FFO per share on a pro forma combined basis for 1996
and the six months ended June 30, 1997. While the Merger and the Related
Transactions, together with the Crow Assets Acquisition, are anticipated to
be accretive to FFO per share in future periods, no assurance can be given
that such accretion will be realized. The Unaudited Pro Forma Combined
Financial Statements contained herein illustrate the effect of the Merger
and the Related Transactions on the net income per share on a pro forma
combined basis. On a pro forma combined basis (post-Merger) for the Patriot
Companies (including the $100 million of Cash Consideration to be paid by
Patriot REIT pursuant to Cash Elections), net income per share is $0.19 for
the year ended December 31, 1996 and $0.26 for the six months ended June
30, 1997, as compared to $0.44 and $0.40 for the year ended December 31,
1996 and the six months ended June 30, 1997, respectively, on a pro forma
combined basis (pre-Merger) for the Patriot Companies. See "Risk Factors--
Dilution to Earnings Caused by Acquisition of Wyndham" and "Unaudited Pro
Forma Financial Statements."
. Risks associated with the potential conflicts of interest between Patriot
REIT and Wyndham International following the Merger. Immediately following
the Merger, Patriot REIT and Wyndham International will have separate
management teams, including different Chief Executive Officers and Chief
Financial Officers,
and this may increase the possibility of disagreements arising between the
two companies. In addition,
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following the Merger, Patriot REIT and Wyndham International will continue
to be separate corporate entities with separate Boards of Directors. A
majority of the directors of each of Patriot REIT and Wyndham International
will not serve as directors or officers of the other company. As a result,
the interests of the Board of Directors of each company may conflict and
such conflicts may rise to disputes between the companies like those that
were experienced by Cal Jockey and Bay Meadows prior to the Cal Jockey
Merger. Patriot REIT and Wyndham International will have, immediately
following the Merger, several of the same directors. Patriot REIT believes
that this overlap of directors and the provisions of the Cooperation
Agreement to be entered into between the Patriot Companies in connection
with the Merger will help decrease the possibility of disagreements between
the two companies. No assurance can be given, however, that the interests
of the directors of one company will not conflict with their interests as
directors of the other company or that their actions as officers and/or
directors of one company will not adversely affect the interests of the
other company. See "--Comparison of Stockholder Rights--Cooperation
Agreement," "Risk Factors--Conflicts of Interest Between Patriot REIT and
Wyndham International" and "Description of Capital Stock--The Cooperation
Agreement."
. Risks associated with the various agreements entered into between the
Patriot Companies and entities owned by certain Crow Family Members and/or
certain members of Wyndham Senior Management in connection with the Merger,
and certain other benefits which may be received by the officers and
directors of Wyndham as a result of the Merger. The decision to enter into
these agreements in connection with the Merger, as well as certain other
benefits which may be received by certain Crow Family Members, Bedrock and
certain members of Wyndham Senior Management in connection with the Merger,
raised issues concerning certain potential conflicts of interest. In
particular, in connection with the Merger, the Patriot REIT Partnership
entered into the Omnibus Purchase and Sale Agreement, as well as eleven
individual purchase and sale agreements, with the Crow Family Entities
providing for the Crow Assets Acquisition. The Crow Family Entities are
owned by certain Crow Family Members (including Harlan R. Crow, a member of
the Wyndham Board), certain members of Wyndham Senior Management and
certain other persons. Accordingly, the decisions of Mr. Crow and Wyndham
Senior Management relating to the decision by Wyndham to effect the Merger,
the consummation of which is conditioned upon the closing of the Crow
Assets Acquisition, raised issues concerning certain potential conflicts of
interest. In light of such potential conflicts of interest, the Wyndham
Board appointed the Wyndham Special Committee. See "Risk Factors--Conflicts
of Interest of Certain Officers, Directors and Stockholders of Wyndham,"
"The Merger and Subscription--Interests of Certain Officers, Directors and
Stockholders of Wyndham" and "--Background of the Merger."
. Risks associated with the adoption of legislation, regulations, or
administrative interpretations which adversely affect the Patriot
Companies' paired share structure. Section 269B(a)(3) of the Code provides
that if the shares of a REIT and a non-REIT are paired, then the REIT and
the non-REIT shall be treated as one entity for purposes of determining
whether either company qualifies as a REIT. If Section 269B(a)(3) applied
to Patriot REIT and Patriot Operating Company, then Patriot REIT would not
be eligible to be taxed as a REIT. Section 269B(a)(3) does not apply,
however, if the shares of the REIT and the non-REIT were paired on June 30,
1983 and the REIT was taxable as a REIT on June 30, 1983. As a result of
this "grandfathering" rule, Section 269B(a)(3) did not apply to Cal Jockey
for periods prior to the Cal Jockey Merger, and, by its terms, this
"grandfathering" rule continued to apply to Patriot REIT after the Cal
Jockey Merger and will continue to apply to Patriot REIT following the
Merger. On November 5, 1997, Representative William Archer, Chairman of the
Ways and Means Committee of the United States House of Representatives,
publicly announced that he plans to review this "grandfathering" rule to
determine whether there should be future restrictions on those companies
that are grandfathered. While Representative Archer stated he does not plan
to eliminate the grandfathering rule, no assurance can be given that new
legislation, new regulations or administrative interpretations with respect
to the grandfathering rules of Section 269B will not be adopted. The
adoption of any such legislation, regulations or administrative
interpretations could have a material adverse effect on the results of
operations, financial condition and prospects of the Patriot Companies.
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. Patriot REIT leases substantially all of its existing hotels to lessees (the
"Lessees") and to Patriot Operating Company pursuant to separate
participating leases (the "Participating Leases"). Patriot REIT's ability to
make distributions to stockholders depends primarily upon the ability of the
Lessees to make rent payments under the Participating Leases (which ability
in turn is dependent primarily on the Lessees' ability to generate
sufficient revenues from those hotels which are leased to them). Any failure
or delay by the Lessees in making rent payments may adversely affect Patriot
REIT's ability to make distributions to stockholders following the Merger.
See "Risk Factors--Dependence on Lessees and Payments under the
Participating Leases."
. Following the Merger, the primary businesses of the Patriot Companies will
be that of buying, selling, leasing, franchising and managing hotels which
are subject to operating risks common to the hotel industry. These risks
include, among other things, (i) competition for guests from other hotels, a
number of which may have greater marketing and financial resources and
experience than the Patriot Companies and the Lessees, (ii) increases in
operating costs due to inflation and other factors, which increases may not
have been offset in recent years, and may not be offset in the future, by
increased room rates, (iii) dependence on business and commercial travelers
and tourism, which business may fluctuate and be seasonal, (iv) increases in
energy costs and other expenses of travel, which may deter travelers and (v)
adverse effects of general and local economic conditions. These factors
could adversely affect the ability of Lessees and Wyndham International to
generate revenues and to make lease payments to Patriot REIT and therefore
Patriot REIT's ability to make expected distributions to stockholders. See
"Risk Factors--Hotel Industry Risks--Operating Risks."
. Patriot REIT's ability to acquire additional hotels could be negatively
impacted by the paired share structure because hotel management companies,
franchisees and others who historically approached Old Patriot REIT with
acquisition opportunities in hopes of establishing lessee relationships may
not do so in the future knowing that following the Merger, Patriot REIT will
rely primarily on Wyndham International to manage the acquired properties.
Such persons may instead provide such acquisition opportunities to hotel
companies that will allow them to manage the properties following the sale.
This could have a negative impact on Patriot REIT's acquisition activities
in the future. See "Risk Factors--Hotel Industry Risks--Competition for
Hotel Acquisition Opportunities."
. Following the Merger, Patriot REIT's investments will be subject to varying
degrees of risk generally incident to the ownership of real property,
including economic and other conditions that may adversely affect real
estate investments and the ability of the Lessees, and hotel management
entities that manage the hotels (the "Operators") and Wyndham International
to make rent payments from the operation of hotels, the relative illiquidity
of real estate, increases in interest rates, increases in taxes caused by
increased assessed values or property tax rates, and potential liabilities,
including liabilities from known or future environmental problems, all of
which could have a material adverse effect on the results of operations and
financial condition of the Patriot Companies. In particular, as the Patriot
Companies' hotel portfolio is comprised of a significantly higher percentage
of owned properties than that of Wyndham's hotel portfolio, following the
Merger the stockholders of Wyndham will be exposed to the foregoing risks to
a significantly greater degree than is currently the case. See "Risk
Factors--Real Estate Investment Risks" and "--Risks Associated with the
Patriot Companies' Higher Proportion of Owned Properties."
. As of November 3, 1997, Wyndham managed 45 hotels pursuant to management
agreements with various parties (after giving effect to the Merger and the
Related Transactions and the Crow Assets Acquisition). Of such managed
hotels, 5 hotels will continue to be owned by Crow Family Members after
giving effect to the consummation of the Crow Assets Acquisition. Wyndham
also manages 17 hotels owned by various affiliates of Bedrock, which owns
approximately 10.5% of the currently outstanding Wyndham Common Stock and
will receive Paired Shares in the Merger. While the average remaining term
of Wyndham's management contracts for Wyndham brand hotels as of December
31, 1996 was approximately 14 years
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(including renewals that Wyndham may elect to exercise), these management
contracts generally may be terminated by the owner of the hotel property if
Wyndham fails to meet certain performance standards, if the property is sold
to a third party, if the property owner defaults on indebtedness encumbering
the property and/or upon a foreclosure of the property. Other grounds for
termination of Wyndham's hotel management contracts include a hotel owner's
election to close a hotel and certain business combinations involving
Wyndham in which the Wyndham brand name or current management team does not
survive. There can be no assurance that following consummation of the
Merger, the Patriot Companies will be able to replace terminated management
contracts or that the terms of renegotiated or converted contracts will be
as favorable as the terms that existed before such renegotiation or
conversion. The Patriot Companies will also be subject to the risk of
deterioration in the financial condition of a hotel owner and such owner's
ability to pay management fees to the Patriot Companies. In addition, a
material deterioration in the operating results of one or more of these
hotel properties and/or a loss of the related management contracts could
adversely affect the value of the Patriot Companies' investment in such
hotel properties. See "Risk Factors--Dependence on Management Contracts."
. In the event that the Merger Agreement is terminated under certain
circumstances, including, without limitation, due to the failure of the
stockholders of Patriot REIT or Patriot Operating Company to approve any of
the Proposals, Patriot REIT is required by the terms of the Merger Agreement
to reimburse Wyndham for its out-of-pocket expenses up to an aggregate of
$7,000,000. In the event that the Merger and the Related Transactions are
not consummated and as a result the Omnibus Purchase and Sale Agreement is
terminated, under certain circumstances Patriot REIT also will be required
to pay the Crow Family Entities $11,000,000. In addition, in the event that
the Merger Agreement is terminated as a result of certain circumstances
within Wyndham's control, including, without limitation, Wyndham having (i)
withdrawn, modified or amended in any respect adverse to Patriot REIT,
Wyndham's approval or recommendation of the Merger Agreement or the Related
Transactions, or (ii) been authorized by its Board of Directors to enter
into a Superior Proposal, Wyndham is required by the terms of the Merger
Agreement to pay Patriot REIT the sum of $30,000,000 in cash. See "Risk
Factors--Substantial Expenses and Payments if Merger Fails to Occur" and
"The Merger Agreement--Termination."
THE MERGER AGREEMENT
Effective Time of the Merger
In accordance with the DGCL, the Effective Time of the Merger will occur upon
the acceptance for recording of the Certificate of Merger by the Delaware
Secretary of State. Subject to the fulfillment or waiver of the other
conditions to the obligations of Patriot REIT, Patriot Operating Company and
Wyndham to consummate the Merger and the Related Transactions, it is currently
expected that the Merger will be consummated as soon as practicable following
the approval by the stockholders of Patriot REIT, Patriot Operating Company and
Wyndham of the Proposals to be voted upon at their respective stockholders'
meetings. See "The Merger Agreement--Effective Time of the Merger."
Cash Election Procedure
The Form of Election is being mailed to holders of record of Wyndham Common
Stock together with this Joint Proxy Statement/Prospectus. For a Form of
Election to be effective, holders of Wyndham Common Stock must properly
complete such Form of Election, and such Form of Election, together with
Wyndham Certificates representing all shares as to which a Cash Election has
been made, duly endorsed in blank or otherwise in form acceptable for transfer
on the books of Wyndham (or by appropriate guarantee of delivery as set forth
in such Form of Election), must be received by the Exchange Agent at the
address listed on the Form of Election and not withdrawn, by the date which is
two business days prior to the closing of the Merger or such other date as may
be agreed to by Patriot REIT and Wyndham (the "Election Date"). The Election
Date will be announced by Patriot REIT in a news release delivered to Dow Jones
News Service at least five business days prior to the Election Date.
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A Form of Election may be revoked by the stockholder submitting it to the
Exchange Agent only by written notice received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Election Date. In addition, all Forms of
Election will automatically be revoked if the Exchange Agent is notified by
Patriot REIT and Wyndham that the Merger has been abandoned. If a Form of
Election is revoked, the Wyndham Certificate or Wyndham Certificates (or
guarantees of delivery, if applicable) to which such Form of Election relates
will be promptly returned to the stockholder who submitted it or them to the
Exchange Agent.
The determination of the Exchange Agent will be binding as to whether or not
a Cash Election has been properly made or revoked. If the Exchange Agent
determines that any Cash Election was not properly made with respect to shares
of Wyndham Common Stock, such shares shall be treated as shares that were not
subject to a Cash Election at the Effective Time, and such shares will be
exchanged in the Merger for the Paired Share Consideration. See "The Merger
Agreement--Cash Election Procedure."
Exchange of Wyndham Stock Certificates
Promptly after the Effective Time, the Exchange Agent will mail a letter of
transmittal (the "Letter of Transmittal") and instructions to each holder of
record of a certificate representing shares of Wyndham Common Stock as of the
Effective Time for use in effecting the surrender of the Wyndham Certificate.
Upon surrender of a Wyndham Certificate for cancellation to the Exchange Agent,
together with such Letter of Transmittal duly executed and completed in
accordance with the instructions thereto, the holder of such Wyndham
Certificate will be entitled to receive in exchange therefor (i) a certificate
representing the number of whole shares of Patriot REIT Common Stock to which
such holder shall be entitled, issued back-to-back with a certificate
representing the number of whole shares of Wyndham International Common Stock
to which such holder shall be entitled and (ii) a check representing the amount
of Cash Consideration payable to such holder on account of such holder's Cash
Election, if any, plus an amount of cash in lieu of fractional Paired Shares,
if any, due such holder, plus the amount of any dividends or distributions, if
any, as provided in the Merger Agreement, after giving effect to any required
withholding tax, and the Wyndham Certificate so surrendered will be canceled.
UNLESS WYNDHAM STOCKHOLDERS ARE MAKING CASH ELECTIONS AS DISCUSSED ABOVE, THEY
SHOULD NOT SEND IN THEIR WYNDHAM CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL. See "The Merger Agreement--Exchange of Wyndham Stock
Certificates."
Conditions to the Merger
The obligations of each of Patriot REIT and Wyndham to effect the Merger and
the transactions contemplated by the Merger Agreement are subject to the
fulfillment or waiver of certain conditions at or prior to the Closing Date
including, among others, that: (i) approval of the Proposals by the requisite
vote of stockholders of Patriot REIT, Patriot Operating Company and Wyndham, as
applicable, shall have been obtained; (ii) the waiting period applicable to
consummation of the Merger and the Stock Purchase, including under the HSR Act
shall have expired or been terminated; (iii) neither of the parties to the
Merger Agreement shall be subject to any order, ruling or injunction of a court
of competent jurisdiction which prohibits consummation of the transactions
contemplated by the Merger Agreement; (iv) the Registration Statement, shall
have been declared effective by the Commission and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission, and no proceedings for that purpose shall have been initiated or
threatened by the Commission; (v) Patriot REIT and Patriot Operating Company
shall have obtained approval for the listing of the Paired Shares issuable in
the Merger and the Stock Purchase on the NYSE, subject to official notice of
issuance; (vi) all consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board, other
regulatory body or third parties required to be made or obtained by Patriot
REIT, Patriot Operating Company or Wyndham in connection with the Merger
Agreement and the Ancillary Agreements shall have been obtained or made, except
where the failure to have obtained or made any such consent, authorization,
order, approval filing or registration, could not reasonably be expected to
have a Wyndham Material Adverse Effect or a New Patriot Material Adverse
Effect, as the case may be; and (vii) at the Closing Date, Patriot REIT and
Wyndham shall have received the opinion of Goodwin, Procter &
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Hoar llp, or other nationally recognized law firm selected by Patriot REIT, and
subject to customary conditions and qualifications, (A) to the effect that (x)
the Merger and the Stock Purchase will be treated for federal income tax
purposes as a reorganization under Section 368(a) of the Code, and (y) prior to
the Merger, Patriot REIT has qualified to be treated as a REIT within the
meaning of Sections 856-860 of the Code including, without limitation, the
requirements of Sections 856 and 857 of the Code, for all applicable tax years
to which Patriot REIT's federal income tax returns are subject to audit and
Patriot REIT is subject to assessment for taxes reportable therein, and (z)
after the Merger, Patriot REIT will be organized in conformity with the
requirements for qualifications as a REIT under Sections 856 through 860 of the
code, the manner of operation of Patriot REIT has enabled it to meet the
requirements for qualification as a REIT under Sections 856 through 860 of the
Code as of the Effective Time and the proposed manner of operations of Patriot
REIT after the Merger will enable Patriot REIT to qualify as a REIT under
Sections 856 through 860 of the Code, and (B) confirming certain prior opinions
rendered to Wyndham by Goodwin, Procter & Hoar llp (the conditions referred to
in the aforementioned clauses (i) through (vi) are referred to herein as the
"Mutual Merger Conditions.") See "The Merger Agreement--Conditions to the
Merger."
The obligation of Wyndham to effect the Merger is subject to the fulfillment
or waiver of certain other conditions at or prior to the Closing Date (the
"Wyndham Merger Conditions") including, among others, that: (i) with certain
exceptions, each of the representations and warranties of Patriot REIT and
Patriot Operating Company contained in the Merger Agreement and the
Ratification Agreements were true and correct when made and shall be true and
correct in all material respects as of the Closing Date as though made on and
as of the Closing Date; (ii) Patriot REIT and Patriot Operating Company shall
have performed or complied in all material respects with all agreements and
covenants required by the Merger Agreement and the Ratification Agreements to
be performed or complied with by Patriot REIT or Patriot Operating Company, as
the case may be, on or prior to the Closing Date; (iii) there shall have not
occurred any changes concerning Patriot REIT or its subsidiaries that, when
combined with all other changes concerning Patriot REIT or Patriot Operating
Company or any of their subsidiaries, have had or could reasonably be likely to
have a New Patriot Material Adverse Effect; (iv) there shall have not occurred
any changes concerning Patriot Operating Company or its subsidiaries that, when
combined with all other changes concerning Patriot REIT or Patriot Operating
Company or any of their subsidiaries, have had or could reasonably be likely to
have a New Patriot Material Adverse Effect; (v) the Stock Purchase shall have
been consummated; (vi) the Boards of Directors of Patriot REIT and Wyndham
International shall have been fixed and elected in the manner provided in the
Merger Agreement and shall consist of the directors designated therein, and the
officers of Patriot REIT and Wyndham International shall have been elected as
provided in the Merger Agreement and shall consist of the officers designated
as provided therein; (vii) Patriot Operating Company shall have entered into
the Merger Subscription Agreement; and (viii) Patriot REIT and Patriot
Operating Company shall have entered into certain other agreements contemplated
by the Merger Agreement.
The obligation of Patriot REIT to effect the Merger is further subject to the
fulfillment or waiver of certain other conditions at or prior to the Closing
Date (the "Patriot REIT Merger Conditions") including, among others, that: (i)
with certain exceptions, each of the representations and warranties of Wyndham
contained in the Merger Agreement were true and correct when made and shall be
true and correct in all material respects as of the Closing Date as though made
on and as of the Closing Date; (ii) Wyndham shall have performed or complied in
all material respects with all agreements and covenants required by the Merger
Agreement to be performed or complied with by Wyndham on or prior to the
Closing Date; (iii) there shall have not occurred any changes concerning
Wyndham or its subsidiaries that, when combined with all other changes
concerning Wyndham or its subsidiaries, have had or could reasonably be likely
to have a Wyndham Material Adverse Effect; (iv) the closing of the transactions
contemplated by the Omnibus Purchase and Sale Agreement shall have become
effective subject only to the Merger becoming effective at the Effective Time;
(v) the Stock Purchase shall have been consummated; (vi) Wyndham shall have
completed the restructuring of certain of its assets in accordance with the
Merger Agreement, and shall have obtained all necessary and required waivers in
connection therewith; (vii)
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Wyndham shall have (A) repurchased, redeemed or otherwise retired the Wyndham
Senior Subordinated Notes in accordance with the terms and conditions of the
Wyndham Indenture on terms reasonably satisfactory to Patriot REIT, or (B)
caused the Wyndham Indenture to be amended to remove or defease those
covenants, agreements and undertakings selected by Patriot REIT that may be
removed or defeased in accordance with the Wyndham Indenture, on terms
reasonably satisfactory to Patriot REIT; and (viii) Wyndham shall have received
to Patriot REIT's satisfaction (A) all amendments, consents, authorizations,
modifications and approvals relating to Wyndham's management agreement for the
Wyndham Anatole Hotel in Dallas, Texas and to the grant of a right of first
offer of the Patriot REIT Partnership with respect to the Wyndham Anatole
Hotel, as summarized in the Omnibus Purchase and Sale Agreement and (B) such
amendments, consents, authorizations, modifications and approvals required
under any lease or related management contract of any of the Wyndham properties
or hotel properties leased or managed by an affiliate of Wyndham owned by
Hospitality Properties Trust or an affiliate thereof to the transactions
contemplated by the Merger Agreement. Among Wyndham's leased hotel properties
are 12 hotels (the "HPT Properties") owned by an affiliate of Hospitality
Properties Trust ("HPT"). The HPT Properties accounted for approximately
$60,971,000 and $40,896,000 of Wyndham's total revenues for 1996 and the first
six months of 1997, respectively. As described above, it is a condition to the
obligations of the Patriot Companies to effect the Merger and the Related
Transactions that Wyndham shall have received, to the Patriot Companies'
satisfaction, any consents required under any lease or related management
contract with respect to the HPT Properties to the transactions contemplated by
the Merger Agreement. See "The Merger Agreement--Conditions to the Merger."
Wyndham has requested that HPT consent to the Merger and the Related
Transactions, and negotiations between Wyndham and HPT are ongoing regarding
the terms on which such consent might be obtained. However, as of the date of
this Joint Proxy Statement/Prospectus, no final agreement has been reached. If
the matter is not resolved prior to the Closing Date and the Patriot Companies
elect to waive the condition relating to the HPT consent and consummate the
Merger and the Related Transactions notwithstanding the absence of such
consent, the Patriot Companies intend to vigorously contest any assertion by
HPT, whether in connection with judicial proceedings or otherwise, that the
consummation of such transactions without such consent constitutes a default
under any of the documents relating to the HPT Properties or entitles HPT to
any legal or equitable remedies. There can be no assurance, however, that the
Patriot Companies would be successful in sustaining their position, and if they
are not, it could result in HPT being entitled to exercise any number of
remedies, including termination of the leases covering the HPT Properties,
which could have a material adverse effect on the Patriot Companies.
Termination
The Merger Agreement may be terminated and abandoned at any time prior to the
Effective Time, in a number of circumstances including, among others: (i) by
mutual written consent of Patriot REIT and Wyndham; (ii) by either Patriot REIT
or Wyndham, if any United States federal or state court of competent
jurisdiction or other governmental entity shall have issued a final order,
decree or ruling or taken any other action permanently enjoining, restraining
or otherwise prohibiting the Merger or the Merger Subscription or the Crow
Assets Acquisition and such order, decree, ruling or other action shall have
become final and nonappealable; (iii) by either Patriot REIT or Wyndham, if the
Merger shall not have been consummated on or before December 16, 1997; (iv) by
either Patriot REIT or Wyndham, if any required approval of the stockholders of
Patriot REIT, Patriot Operating Company or Wyndham that is a condition to the
obligations of Patriot REIT or Wyndham under the Merger Agreement shall not
have been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment thereof;
(v) by either Patriot REIT or Wyndham, if (x) Congress shall have enacted, or
proposed the enactment of, legislation or any bill having the effect of (A)
eliminating the "grandfathered" status of Patriot REIT under Section 269B(a)(3)
of the Code by virtue of Section 136(c)(3) of the Deficit Reduction Act of 1984
(the "Deficit Act"), or (B) causing the Merger and the Stock Purchase to fail
to be treated for federal income tax purposes as a reorganization under Section
368(a) of the Code, or otherwise eliminating the treatment of the Merger and
the Stock Purchase for federal income tax purposes as a reorganization under
Section 368(a) of the Code, or (y) Congress shall have enacted legislation or
any bill having the effect of causing Wyndham to recognize gain as a result of
the Merger; (vi) by
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Patriot REIT, if Wyndham shall have (a) withdrawn, modified or amended in any
respect adverse to Patriot REIT its approval or recommendation of the Merger
Agreement or any of the transactions contemplated therein, (b) recommended any
Acquisition Proposal from a person other than Patriot REIT, (c) publicly
expressed no opinion and remained neutral toward any Acquisition Proposal, or
(d) resolved to do any of the foregoing, provided that, in any such case,
Wyndham shall within five (5) business days after demand by Patriot REIT,
deposit $30,000,000 with the escrow agent contemplated by the Merger Agreement
to be distributed in accordance with the terms of the Merger Agreement; (vii)
by Wyndham, if the Wyndham Board authorizes or desires, after making a
determination in good faith, after receiving advice of legal counsel, that such
action is necessary in order for the Wyndham Board to comply with the
directors' fiduciary duties to stockholders under applicable law, to authorize
Wyndham to execute an agreement providing for a Superior Proposal (a "Superior
Proposal Agreement"), provided that Wyndham has, prior to the termination of
the Merger Agreement and/or the execution of such Superior Proposal Agreement,
deposited $30,000,000 with the escrow agent to be distributed in accordance
with the Merger Agreement; (viii) by Wyndham, if (A) Patriot REIT has failed to
perform in any material respect any of its obligations required to be performed
by it under the Merger Agreement, the Patriot REIT Ratification Agreement or
the Stock Purchase Agreement and such failure continues for more than 30 days
after notice unless failure to so perform has been caused by or results from a
breach of the Merger Agreement by Wyndham, or (B) Patriot Operating Company has
failed to perform in any material respect any of its obligations required to be
performed by it under the Merger Subscription Agreement or the Patriot
Operating Company Ratification Agreement and such failure continues for more
than 30 days after notice unless failure to so perform has been caused by or
results from a breach of the Merger Subscription Agreement by Wyndham; (ix) by
Patriot REIT, if (A) Wyndham shall have failed to perform in any material
respect any of its obligations required to be performed by it under the Merger
Agreement and such failure continues for more than 30 days after notice unless
failure to so perform has been caused by or results from a breach of the Merger
Agreement by Patriot REIT, or (B) if Wyndham has failed to perform in any
material respect any of its obligations required to be performed by it under
the Merger Subscription Agreement and such failure continues for more than 30
days after notice unless failure to so perform has been caused by or results
from a breach of the Merger Subscription Agreement by Patriot Operating
Company; (x) by Wyndham, if the Patriot Average Closing Price is less than
$20.87 (as adjusted pursuant to the Merger Agreement); (xi) by Wyndham, if (a)
Wyndham has provided written notice to Patriot REIT of its desire to terminate
the Merger Agreement upon the expiration of the Wyndham Notice Period and (b)
Patriot REIT has not provided written notice to Wyndham prior to the expiration
of the Patriot Notice Period to the effect that the Patriot REIT Board has,
notwithstanding its earlier decision, determined not to proceed with an
Additional Liberty Investment; or (xii) by Patriot REIT or Wyndham, if the
Stock Purchase Agreement has been terminated pursuant to the terms thereof. See
"The Merger Agreement--Termination."
Termination Amount and Expenses
In the event that Patriot REIT desires to terminate the Merger Agreement
because Wyndham shall have (a) withdrawn, modified or amended in any respect
adverse to Patriot REIT its approval or recommendation of the Merger Agreement
or any of the transactions contemplated herein, (b) recommended any Acquisition
Proposal from a person other than Patriot REIT, (c) publicly expressed no
opinion and remained neutral toward any Acquisition Proposal, or (d) resolved
to do any of the foregoing, or in the event that Wyndham desires to terminate
the Merger Agreement because the Wyndham Board authorizes or desires, after
making a determination in good faith, after receiving advice of legal counsel,
that such action is necessary in order for the Wyndham Board to comply with the
directors' fiduciary duties to stockholders under applicable law, to authorize
Wyndham to execute a Superior Proposal Agreement providing for a Superior
Proposal, Wyndham is required to pay to Patriot REIT $30,000,000 in cash.
If the Merger Agreement is terminated due to failure to obtain Patriot REIT
and Patriot Operating Company stockholder approval of any of the Proposals for
which approval is required under the Merger Agreement, or because Wyndham has
provided written notice to Patriot REIT of its desire to terminate the Merger
Agreement
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upon the expiration of the Wyndham Notice Period and Patriot REIT has not
provided written notice to Wyndham prior to the expiration of the Patriot
Notice Period to the effect that the Patriot REIT Board has, notwithstanding
its earlier decision, determined not to proceed with an Additional Liberty
Investment, Patriot REIT shall reimburse Wyndham for its out-of-pocket costs
and expenses incurred in connection with the Merger Agreement and the Related
Transactions in an amount up to $7,000,000 in the aggregate. In addition, in
the event that the Merger and the Related Transactions are not consummated and
as a result the Omnibus Purchase and Sale Agreement is terminated under certain
circumstances in which the Crow Family Entities waive the condition that the
Merger shall have been consummated and Patriot REIT does not waive such
condition, Patriot REIT also will be required to pay the Crow Family Entities
$11,000,000. Conversely, if in that circumstance Patriot REIT waives such
condition, but the Crow Family Entities do not, then the Crow Family Entities
will be required to pay Patriot REIT $11,000,000.
Except as described above or otherwise provided in the Merger Agreement,
Patriot REIT and Wyndham have agreed that all costs and expenses incurred in
connection with the Merger Agreement and the Related Transactions shall be paid
by the party incurring such expenses, except that (i) the filing fee(s) in
connection with the filing of the Registration Statement, (ii) the filing fee
in connection with the listing of the Paired Shares on the NYSE, if any, (iii)
the expenses incurred for printing and mailing the Registration Statement and
the Joint Proxy Statement/Prospectus, and (iv) the filing fee in connection
with the filing(s) under the HSR Act, shall be shared equally by Wyndham, on
the one hand, and Patriot REIT, on the other hand. Patriot REIT and Wyndham
have also agreed that all costs and expenses for professional services rendered
pursuant to the transactions contemplated by the Merger Agreement including,
but not limited to, investment banking and legal services, will be paid by the
party incurring such services. See "The Merger Agreement--Termination."
Acquisition Proposals
In the Merger Agreement, Wyndham agreed to terminate any discussions or
negotiations regarding any acquisition proposal by any third party, and, until
the termination of the Merger Agreement, neither Wyndham nor any of its
subsidiaries may take certain specified actions with respect to any Acquisition
Proposal by a third party. However, Wyndham may furnish information to and
participate in discussions or negotiations with a third party with respect to
an unsolicited Acquisition Proposal if the Wyndham Board shall have determined,
based on the advice of its outside legal counsel, that such action is necessary
in order to comply with the directors' fiduciary duties to the stockholders of
Wyndham under applicable law and the third party has executed a confidentiality
and standstill agreement similar in scope to that executed by Old Patriot REIT.
Wyndham may terminate the Merger Agreement in order to enter into a Superior
Acquisition Proposal, and in that event and in certain other circumstances
would be required to pay Patriot REIT a $30 million breakup fee as discussed
above under "--Termination" and "--Termination Amount and Expenses." See "The
Merger Agreement--Certain Covenants" and "--Termination."
COMPARISON OF STOCKHOLDER RIGHTS
State Law and Organizational Documents
The rights of the stockholders of Patriot REIT are presently governed by the
DGCL, the Patriot REIT Charter and the Patriot REIT Bylaws, the rights of the
stockholders of Patriot Operating Company are presently governed by the DGCL,
the Patriot Operating Company Charter and the Patriot Operating Company Bylaws
and the rights of the stockholders of Wyndham are presently governed by the
DGCL, the Wyndham Charter and the Wyndham Bylaws. In connection with the
Merger, upon stockholder approval of the Proposals, the Patriot REIT Charter
and the Patriot Operating Company Charter (the "Patriot Charters") will be
amended and restated and will become the Restated Charters of Patriot REIT and
Wyndham International. In addition, in connection with the Merger, the Patriot
REIT Bylaws and Patriot Operating Company Bylaws will be amended and restated
to be made consistent with the Restated Charters and will become the Restated
Bylaws of Patriot REIT and Wyndham International. At the Effective Time,
stockholders of Wyndham will become stockholders of Patriot REIT and
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Wyndham International, each a Delaware corporation, and their rights will be
governed by the DGCL, the Restated Charters and the Restated Bylaws. In
considering the recommendations of the Patriot REIT Board, the Patriot
Operating Company Board and the Wyndham Board to approve the Proposals,
stockholders of Patriot REIT, Patriot Operating Company and Wyndham should be
aware that the rights of stockholders of Patriot REIT and Wyndham International
under the Restated Charters and the Restated Bylaws will differ in certain
respects from the existing rights of the Patriot REIT stockholders under the
Patriot REIT Charter and the Patriot REIT Bylaws, the existing rights of the
Patriot Operating Company stockholders under the Patriot Operating Company
Charter and the Patriot Operating Company Bylaws, and the existing rights of
the Wyndham stockholders under the Wyndham Charter and the Wyndham Bylaws. A
summary of certain differences is set forth below. Stockholders of Patriot
REIT, Patriot Operating Company and Wyndham should read carefully the Restated
Charters, copies of which are attached to this Joint Proxy Statement/Prospectus
as Annexes F and G, respectively.
Certain differences between the rights of stockholders of Patriot REIT and
Patriot Operating Company and the rights of stockholders of Patriot REIT and
Wyndham International following the Merger include the following: (i) the
Restated Charters will contain an ownership limit provision whereby no
individual or entity, other than a Look-Through Entity, may own, or be deemed
to own by virtue of certain attribution rules of the Code or be deemed to
beneficially own pursuant to the applicable provisions of the Exchange Act, in
excess of 8.0% (9.8% in the case of any person that is a Look-Through Entity)
of the outstanding shares of any class or series of Equity Stock, as compared
to the Patriot Charters, each of which provide for a 9.8% ownership limitation
for all individuals or entities; (ii) unlike the Patriot Charters, the Restated
Charters will contain provisions to effect certain terms of the Cooperation
Agreement, including provisions relating to the issuance of paired and unpaired
equity by Patriot REIT and Wyndham International; (iii) unlike the Patriot
Charters, the Restated Charters will provide that the Restated Bylaws may be
amended or repealed by the Board of Directors; and (iv) pursuant to the Amended
Pairing Agreement, each of Patriot REIT and Wyndham International will be able
to issue shares of capital stock of any class or series (other than Patriot
REIT Common Stock and Wyndham International Common Stock), irrespective of
whether such shares are convertible into Paired Shares, without making
provision for the simultaneous issuance or transfer to the same person of the
same number of shares of capital stock of the other company and for the pairing
of such shares, as compared to the current provisions of the Pairing Agreement,
which provide that until such time as the limitation on transfer provided for
in the Pairing Agreement is terminated, no shares of Patriot REIT Common Stock
or Patriot Operating Company Common Stock or shares of preferred stock that are
convertible into Paired Shares are transferable on the books of such company
unless a simultaneous transfer is made by the same transferor to the same
transferee of an equal number of shares of that same class or series of Equity
Stock of the other company, and that neither Patriot REIT nor Patriot Operating
Company may issue shares of Patriot REIT Common Stock or Patriot Operating
Company Common Stock or shares of preferred stock that are convertible into
Paired Shares unless provision has been made for the simultaneous issuance or
transfer to the same person of the same number of shares of that same class or
series of Equity Stock of the other company and for the pairing of such shares.
See "Comparison of Stockholders Rights."
Certain differences between the rights of stockholders of Wyndham and the
rights of stockholders of Patriot REIT and Wyndham International following the
Merger include the following: (i) unlike the Wyndham Charter, which provides
that a merger or consolidation involving Wyndham shall be approved by the
affirmative vote of at least two-thirds of the votes entitled to be cast by
each voting group that is entitled to vote on such transaction, the Restated
Charters will not contain a general provision requiring a supermajority vote of
stockholders to approve a merger, consolidation or sale of all or substantially
all of the assets of the company; (ii) the Restated Charters each will provide
that directors may be removed only for cause by the vote of holders of at least
75% of the outstanding shares of capital stock entitled to vote in the election
of directors, whereas the Wyndham Charter provides that directors may be
removed only for cause by the vote of holders of at least a majority of the
outstanding shares of capital stock entitled to vote in the election of
directors; (iii) unlike the Wyndham Charter, the Restated Charters will contain
an ownership limit provision whereby no individual or entity, other than a
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Look-Through Entity, may own, or be deemed to own by virtue of certain
attribution rules of the Code or be deemed to beneficially own pursuant to the
applicable provisions of the Exchange Act, in excess of 8.0% (9.8% in the case
of any person that is a Look-Through Entity) of the outstanding shares of any
class or series of Equity Stock; (iv) unlike the shares of capital stock of
Wyndham, until such time as the limitation on transfer provided for in the
Amended Pairing Agreement is terminated, no shares of Patriot REIT Common Stock
or Wyndham International Common Stock will be transferable on the books of such
company unless a simultaneous transfer is made by the same transferor to the
same transferee of an equal number of shares of common stock of the other
company, and neither Patriot REIT nor Wyndham International will be able to
issue shares of Patriot REIT Common Stock or Wyndham International Common Stock
unless provision has been made for the simultaneous issuance or transfer to the
same person of the same number of shares of common stock of the other company
and for the pairing of such shares; (v) unlike the Wyndham Charter, which does
not permit stockholders to act by written consent, the Restated Charters will
include a provision requiring unanimous stockholder approval for actions to be
taken by stockholder consent without a stockholders' meeting, and (vi) unlike
the Wyndham Charter, the Restated Charters will contain provisions to effect
certain terms of the Cooperation Agreement, including provisions relating to
the issuance of paired and unpaired equity of Patriot REIT and Wyndham
International. See "Comparison of Stockholders Rights."
Certain existing provisions of the Patriot REIT Charter, the Patriot REIT
Bylaws, the Patriot Operating Company Charter and the Patriot Operating Company
Bylaws that will continue in the Restated Charters and the Restated Bylaws
could have a potential anti-takeover effect on Patriot REIT and Wyndham
International. The ownership limit provisions, the staggered board provision,
the fact that directors are removable only for cause, the fact that
stockholders may not call a special meeting of stockholders, the fact that
stockholders may act without a meeting of stockholders only by unanimous
written consent, the vote required for a business combination with a related
person, the limitation of the power to fill board vacancies to the remaining
directors, the vote required for the stockholders to amend the bylaws, and the
presence of advance-notice bylaw provisions with respect to stockholder
proposals and director nominations, could have the effect of making it more
difficult for a third party to acquire control of Patriot REIT or Wyndham
International, including certain acquisitions that stockholders may deem to be
in their best interests. In addition, the current 9.8% ownership limit in the
Patriot Charters will be decreased to 8.0% (except with respect to Look-Through
Entities) in the Restated Charters, which could also have the effect of making
the acquisition of control more difficult for a third party. See "Comparison of
Stockholders Rights."
Cooperation Agreement
Although a paired share structure may result in stockholders of the paired
companies realizing certain economic benefits not realizable by stockholders of
companies not having a paired share structure, each paired company is a
separate corporate entity with a separate Board of Directors and a different
management team. Accordingly, the interests of the Board of Directors and
management of the paired companies may conflict and such conflicts may possibly
rise to disputes between the companies. Prior to the Cal Jockey Merger, Cal
Jockey and Bay Meadows experienced certain disagreements and disputes, some of
which resulted in litigation between the companies. Patriot REIT and Patriot
Operating Company believe that these disagreements and disputes compromised the
ability of Cal Jockey and Bay Meadows to operate the companies in a manner
designed to maximize the potential economic benefits that could be realized for
stockholders of the paired companies. Patriot REIT and Patriot Operating
Company believe that to increase the likelihood that the stockholders of the
two companies may fully realize the economic benefits of the paired share
structure, it is in the best interests of the companies and their respective
stockholders that the risk of potential conflicts between the two companies be
minimized. Pursuant to the Merger Agreement, Patriot REIT and Patriot Operating
Company have agreed to enter into the Cooperation Agreement no later than
eleven business days prior to the Closing Date. The Cooperation Agreement
provides that the Patriot Companies shall cooperate to the fullest extent
possible in the conduct of their respective operations and take all necessary
action to preserve the paired share structure and
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maximize the economic and tax advantages associated therewith. One of the
primary objectives of the Cooperation Agreement is to set forth the
understanding of the Patriot Companies that Patriot REIT shall have the sole
right and power to authorize, effect and control issuances of paired equity
(including securities convertible into paired equity) of the two companies. The
Cooperation Agreement also will provide for a number of corporate governance
mechanisms designed to accomplish this objective and the other objectives set
forth therein. These mechanisms will include (i) the establishment of a
Cooperation Committee that will normally consider and propose the agenda
listing the matters to be considered at any joint meeting of the Boards of
Directors, (ii) the establishment of corporate matters categories and
procedures for the consideration and reconsideration of matters brought before
the Boards of Directors of Patriot REIT and Patriot Operating Company, (iii)
the establishment of a Hotel Acquisitions Committee that will analyze, evaluate
and consider potential acquisitions by the Patriot Companies of hotel
properties and related assets, (iv) provisions that will govern the sole
authority of Patriot REIT to authorize, effect and control issuances of paired
equity (including securities convertible into paired equity) of the two
companies, and (v) the establishment of an Unpaired Equity Committee that will
have the sole authority to authorize and approve issuances of unpaired equity
by Patriot Operating Company. Following consummation of the Merger, Patriot
REIT and Wyndham International will continue to have the rights and obligations
of Patriot REIT and Patriot Operating Company, respectively, under the
Cooperation Agreement. See "Description of Capital Stock--The Cooperation
Agreement."
Certain provisions of the Cooperation Agreement, including each of the
corporate governance mechanisms described above, and the provisions contained
in the Restated Charters effecting certain terms of the Cooperation Agreement,
could have a potential anti-takeover effect on the Patriot Companies by making
it more difficult for a third party to acquire control of the Patriot
Companies, including certain acquisitions that stockholders may deem to be in
their best interests. See "Comparison of Stockholders Rights."
INTERESTS OF CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS
In considering the recommendation of the Wyndham Board to approve the Merger
Proposal, Wyndham stockholders should be aware that certain Crow Family
Members, Bedrock and certain members of Wyndham Senior Management have
interests in, and will receive benefits as a consequence of, the Merger, the
Related Transactions and the Crow Assets Acquisition that raise issues
concerning certain potential conflicts of interest.
In connection with the Merger, the Patriot REIT Partnership has entered into
the Omnibus Purchase and Sale Agreement, as well as eleven individual purchase
and sale agreements, with the Crow Family Entities providing for the Crow
Assets Acquisition. The Crow Family Entities are owned by certain Crow Family
Members, certain members of Wyndham Senior Management and certain other
persons. The Patriot REIT Partnership has agreed to pay the Crow Family
Entities an aggregate purchase price of approximately $331.7 million in cash,
plus up to $14 million in additional cash consideration if two of the hotels
meet certain cash flow targets. It is estimated that after payment of
outstanding indebtedness and other transactional expenses, the Crow Family
Entities will have available for distribution to their Crow Family Member and
Wyndham Senior Management partners aggregate net proceeds from the closing of
the Crow Assets Acquisition of approximately $67.7 million.
In connection with the Merger, each of the owners of ISIS 2000 (the "ISIS
Owners"), the entity that provides centralized reservation services and
property management services to Wyndham brand hotels, granted options
(collectively, the "ISIS Options") to the Patriot REIT Partnership to purchase
their ownership interests in ISIS 2000. The ISIS Owners consist of certain Crow
Family Members and certain members of Wyndham Senior Management. The exercise
price of the ISIS Options is equal to an amount that would yield an internal
rate of return equal to 12.5% on total capital contributions by the ISIS Owners
as of the date of exercise.
Patriot REIT has entered into employment agreements with each of Messrs.
Carreker, Bentley and Koonce and Ms. Raymond to become effective upon
consummation of the Merger. The employment agreements of
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Messrs. Carreker, Bentley and Koonce will be assigned to Wyndham International
following the Merger. Mr. Carreker's agreement provides for an initial term of
five years, an additional two-year renewal term, and the agreements of Messrs.
Bentley and Koonce and Ms. Raymond provide for an initial term of three years,
with an additional two-year renewal term, subject to certain termination rights
of the respective employees. Under the agreements, commencing January 1, 1998,
Messrs. Carreker, Bentley and Koonce and Ms. Raymond generally will receive
base annual salaries of $500,000, $250,000, $250,000, and $250,000,
respectively, with the amounts of such base annual salaries to thereafter be
set by the appropriate Board of Directors. Each such executive will also be
eligible to receive cash incentive compensation in amounts determined by the
appropriate compensation committee up to 100%, 80%, 80% and 80% of the annual
base salary of the respective executive. Each executive also is entitled to
receive certain other benefits, including payment by their respective employers
of life insurance premiums, participation in employee benefit plans, and
severance and change of control payments under certain circumstances. Pursuant
to and subject to the terms of the employment agreements, Messrs. Carreker,
Bentley and Koonce and Ms. Raymond have agreed not to compete with Patriot REIT
or Wyndham International during the terms of their respective agreements and,
in the case of Mr. Carreker, for three years thereafter, and, in the case of
Messrs. Bentley and Koonce and Ms. Raymond, for a period of 18 months
thereafter.
Patriot REIT and Patriot Operating Company have agreed to enter into a
registration rights agreement (the "Registration Rights Agreement"), which will
become effective upon consummation of the Merger, with CF Securities, Bedrock
(in which Messrs. Daniel Decker and Robert Whitman, each of whom is a director
of Wyndham, have ownership interests), Messrs. Carreker, Bentley and Koonce and
Ms. Raymond (collectively, the "Registration Rights Holders"). In connection
with the Registration Statement relating to this Joint Proxy
Statement/Prospectus, the Patriot Companies have registered for sale to the
public the Paired Shares, including the Paired Shares that are issuable upon
conversion of the shares of Series A Preferred Stock (collectively,
"Registrable Securities"), to be issued to the Registration Rights Holders
pursuant to the Stock Purchase Agreement and the Merger Agreement.
As of November 3, 1997, Wyndham has granted to Wyndham Senior Management
options to purchase an aggregate of 574,100 shares of Wyndham Common Stock,
including 183,000, 80,000, 80,000, 80,000 and 37,500 options granted to Messrs.
Carreker, Bentley and Koonce and Ms. Raymond and Carla S. Moreland,
respectively. None of such options was vested on such date. Pursuant to the
Merger Agreement, all outstanding Wyndham options will be assumed by the
Patriot Companies. The Assumed Options will not terminate in connection with
the Merger and will continue to have, and be subject to, the same terms and
conditions as set forth in the stock option plans and agreements (as in effect
immediately prior to the Effective Time) pursuant to which the options were
issued, provided, among other things, that (i) each option will fully vest and
become immediately exercisable in accordance with its terms (except in the case
of one option covering 14,577 shares of Wyndham Common Stock), (ii) each option
will be exercisable for that number of whole Paired Shares equal to the product
of the number of shares of Wyndham Common Stock covered by such option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares and (iii) the exercise
price per Paired Share under such option will be equal to the exercise price
per share of Wyndham Common Stock under the Existing Wyndham Option divided by
the Exchange Ratio and rounded to the nearest cent. In the event that the
members of Wyndham Senior Management exercise all of the options granted to
them, then, based on the $31 1/2 closing price of a Paired Share on the NYSE on
November 3, 1997, the aggregate value (net of the exercise price) for such
options would be approximately $14,217,600, including $4,572,100, $2,021,800,
$2,021,800, $2,021,800 and $943,100 for the options of Messrs. Carreker,
Bentley and Koonce and Mses. Raymond and Moreland, respectively.
The obligation of Patriot REIT to effect the Merger and the Related
Transactions is conditioned upon, among other things, certain modifications to
the management agreement for the Wyndham Anatole Hotel, which is owned by an
entity (the "Anatole Partnership") in which certain Crow Family Members have
ownership interests and is being leased and operated by a partnership owned by
certain Crow Family Members (the "Anatole Operating
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Partnership"). In order to obtain the required modifications, Wyndham has
agreed to loan up to $10 million to the Anatole Operating Partnership to be
used to renovate and expand an existing exhibit hall.
As part of the Crow Assets Acquisition, the Patriot REIT Partnership will
acquire ownership of the Wyndham Franklin Plaza Hotel, and the mortgage
indebtedness secured by the hotel, which has a principal balance of
approximately $47 million (the "Franklin Plaza Loan"), will be repaid and
refinanced. The Franklin Plaza Loan is held by Connecticut General Life
Insurance Company, an affiliate of CIGNA. Philip J. Ward, a director of Wyndham
and a member of the Wyndham Special Committee, is the Senior Managing Director
in charge of the Real Estate Investment Division of CIGNA Investments, Inc.,
which is also an affiliate of CIGNA and which provides investment advisory
services to Connecticut General Life Insurance Company. Prior to becoming a
Wyndham director in June 1996, Mr. Ward had decision-making authority with
respect to the Franklin Plaza Loan. Upon joining the Wyndham Board, however,
Mr. Ward formally delegated such authority to a subordinate and recused himself
from all decisions with respect to the administration, repayment and/or
refinancing of the Franklin Plaza Loan. In addition, Mr. Ward does not
participate in any Wyndham Board decisions concerning the Wyndham Franklin
Plaza Hotel. Mr. Ward has no direct or indirect financial interest in the
Franklin Plaza Loan or its refinancing in connection with the Crow Assets
Acquisition.
Several members of the current Board of Directors of Wyndham, including
members of the Wyndham Special Committee, will serve as members of the Boards
of Directors of one or both of Patriot REIT and Wyndham International following
the Merger and will receive compensation for their services in accordance with
the policies of those companies. See "Management of Patriot REIT and Wyndham
International."
Philip J. Ward and James C. Leslie have received compensation for their
services as members of the Wyndham Special Committee in accordance with the
compensation arrangement approved by the Wyndham Board of Directors. See "The
Merger and Subscription--Reasons for the Merger and the Related Transactions--
Recommendation of the Board of Directors of Wyndham" and "--Recommendation of
the Wyndham Special Committee."
The Merger Agreement provides that after the Merger, Patriot REIT (and prior
to the Merger, Wyndham) will indemnify and hold harmless, to the full extent
permitted by applicable law, any director or officer of Wyndham or any of its
subsidiaries against claims, suits and proceedings pertaining to the fact that
he is or was a director (or member of a committee of the Wyndham Board) or
officer of Wyndham or any of its subsidiaries or pertaining to the Merger
Agreement or any of the Related Transactions. Under the Merger Agreement,
Patriot REIT has also agreed to provide the directors, officers, employees and
agents of Wyndham with all rights to indemnification existing under certain
indemnification agreements currently in effect between these individuals and
Wyndham. Pursuant to the terms of the Merger Agreement, Patriot REIT has
further agreed to provide the directors, officers, employees and agents of
Wyndham and each of their respective subsidiaries with all rights to
indemnification or exculpation existing under their respective charters and
bylaws in effect as of the date of the Merger Agreement with respect to matters
occurring at or prior to the Effective Time for a period of not less than six
years after the Effective Time. Patriot REIT also will, subject to certain
conditions, maintain in effect any current policies of the directors' and
officers' liability insurance maintained by Wyndham for Wyndham's directors and
officers for a period of six years from the Effective Time. See "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Wyndham."
Wyndham is currently a party to a number of transactions in which certain
Crow Family Members, Wyndham Senior Management and Bedrock have a direct or
indirect interest. It is anticipated that similar transactional relationships
will exist between Patriot REIT and Wyndham International and such persons and
entities following the Merger, subject to the related party transactional
policies of Patriot REIT and Wyndham International.
In light of the foregoing potential conflicts of interest, the Wyndham Board
appointed the Wyndham Special Committee. See "The Merger and Subscription--
Interests of Certain Officers, Directors and Stockholders of Wyndham" and "--
Background of the Merger."
33
<PAGE>
SUMMARY FINANCIAL INFORMATION
OLD PATRIOT REIT
(FORMERLY KNOWN AS PATRIOT AMERICAN HOSPITALITY, INC.)
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth historical financial information for Old
Patriot REIT and the Lessees (which include CHC Lease Partners, NorthCoast
Hotels, L.L.C. ("NorthCoast Lessee"), DTR North Canton, Inc. ("Doubletree
Lessee"), Crow Hotel Lessee, Inc., Metro Hotel Leasing Corporation ("Metro
Lease Partners"), Grand Heritage Leasing, L.L.C. and PAH RSI, L.L.C. ("PAH RSI
Lessee"), and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Old
Patriot REIT, CHC Lease Partners, NorthCoast Lessee and PAH RSI Lessee
incorporated by reference into this Joint Proxy Statement/Prospectus. Unless
otherwise indicated, all references to the number of shares and per share
amounts have been restated to reflect the impact of the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued in the
Cal Jockey Merger and the 1.927-for-1 stock split effected in the form of a
stock dividend distributed in July 1997. In addition, all references to the
number of shares and per share amounts related to periods prior to the 2-for-1
stock split on Old Patriot REIT's common stock effected in the form of a stock
dividend distributed in March 1997 have been restated to reflect the impact of
such stock split.
34
<PAGE>
OLD PATRIOT REIT
(FORMERLY KNOWN AS PATRIOT AMERICAN HOSPITALITY, INC.)
SUMMARY CONDENSED CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED SIX MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 JUNE 30, 1997
------------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Participating lease revenue..... $ 10,582 $ 75,893 $ 71,986
Income before minority interests
and extraordinary item......... 7,064 44,813 28,147
Income before extraordinary
item........................... 6,096 37,991 23,166
Net income applicable to common
shareholders................... $ 5,359 $ 37,991 $ 23,166
PER SHARE DATA(1):
Income before extraordinary
item........................... $ 0.21 $ 1.06 $ 0.52
Extraordinary item, net of
minority interests............. (0.03) -- --
--------- --------- ----------
Net income per common share..... $ 0.18 $ 1.06 $ 0.52
========= ========= ==========
Dividends per common share(2)... $ 0.24 $ 0.9825 $ 0.585
========= ========= ==========
Weighted average number of
common shares and common share
equivalents outstanding........ 29,350 35,938 44,783
========= ========= ==========
CASH FLOW DATA:
Cash provided by operating
activities..................... $ 7,618 $ 61,196 $ 38,463
Cash used in investing
activities..................... (306,948) (419,685) (315,327)
Cash provided by financing
activities..................... 304,099 360,324 279,235
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Investment in hotel properties
and land held for sale, at
cost, net...................... $265,759 $641,825 $1,011,940
Total assets.................... 324,224 760,931 1,177,401
Total debt...................... 9,500 214,339 584,294
Minority interest in Patriot
REIT Partnership............... 41,522 68,562 118,151
Minority interest in
consolidated subsidiaries...... -- 11,711 15,767
Shareholders' equity............ 261,778 437,039 440,862
<CAPTION>
PERIOD
OCTOBER 2, 1995 YEAR-
(INCEPTION OF ENDED SIX MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 JUNE 30, 1997
------------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
OTHER DATA:
Funds from operations(3)........ $ 9,798 $ 64,463 $47,432
Cash available for
distribution(4)................ 8,603 55,132 40,116
Weighted average number of
common shares and OP Units
outstanding(5)................. 34,001 42,200 53,351
</TABLE>
(Notes on page 37)
35
<PAGE>
LESSEES
SUMMARY COMBINED HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
OCTOBER 2, 1995
(INCEPTION OF YEAR ENDED SIX MONTHS
OPERATIONS) THROUGH DECEMBER 31, ENDED
DECEMBER 31, 1995 1996 JUNE 30, 1997
------------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
FINANCIAL DATA:
Room revenue................... $21,508 $155,856 $141,543
Food and beverage revenue...... 8,649 56,833 56,740
Conference center revenue...... 576 2,354 1,363
Club, club membership and spa
revenue....................... -- -- 15,361
Shopping center revenue........ -- -- 865
Telephone and other............ 1,732 14,467 17,941
------- -------- --------
Total revenue.................. 32,465 229,510 233,813
Hotel operating expenses....... 20,801 150,037 154,498
Participating Lease payments... 10,582 75,893 71,986
------- -------- --------
Income before Lessee expenses.. 1,082 3,580 7,329
Lessee expenses(6)............. 573 4,588 5,498
------- -------- --------
Net income (loss).............. $ 509 $ (1,008) $ 1,831
======= ======== ========
</TABLE>
(Notes on following page)
36
<PAGE>
NOTES TO OLD PATRIOT REIT AND LESSEES SUMMARY FINANCIAL INFORMATION
(1) On January 30, 1997, the Old Patriot REIT Board declared a 2-for-1 stock
split effected in the form of a stock dividend distributed on March 18,
1997 to stockholders of record on March 7, 1997. On July 1, 1997, by
operation of the Cal Jockey Merger, each issued and outstanding share of
Old Patriot REIT Common Stock was converted into 0.51895 Paired Shares. In
addition, on July 10, 1997, the respective Boards of Directors of Patriot
REIT and Patriot Operating Company declared a 1.927-for-1 stock split on
its shares of common stock effected in the form of a stock dividend
distributed on July 25, 1997 to stockholders of record on July 15, 1997.
All references herein to the number of shares, per share amounts, and
market prices of Old Patriot REIT Common Stock and options to purchase Old
Patriot REIT Common Stock have been restated to reflect the impact of the
Cal Jockey Merger and the above-described stock splits, as applicable.
(2) Dividends paid for the six months ended June 30, 1997 include a special
dividend of $0.06 per share paid by Old Patriot REIT on June 30, 1997. To
maintain its qualification as a REIT prior to consummation of the Cal
Jockey Merger, Old Patriot REIT was required to distribute to its
stockholders any undistributed "real estate investment trust taxable
income" of Old Patriot REIT for Old Patriot REIT's short taxable year
ending with the consummation of the Cal Jockey Merger.
(3) In accordance with the resolution adopted by the Board of Governors of the
National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
funds from operations represents net income (loss) (computed in accordance
with generally accepted accounting principles), excluding gains or losses
from debt restructuring or sales of property, plus depreciation of real
property, and after adjustments for unconsolidated partnerships, joint
ventures and corporations. Old Patriot REIT has also made certain
adjustments to funds from operations for real estate related amortization
expense. Funds from operations should not be considered as an alternative
to net income or other measurements under generally accepted accounting
principles as an indicator of operating performance or to cash flows from
operating, investing or financing activities as a measure of liquidity.
Funds from operations does not reflect working capital changes, cash
expenditures for capital improvements or principal payments on
indebtedness. Under the Participating Leases, Old Patriot REIT is obligated
to establish a reserve for capital improvements at its hotels (including
the replacement or refurbishment of F, F & E) and to pay real estate and
personal property taxes and casualty insurance. Management believes that
funds from operations is helpful to investors as a measure of the
performance of an equity REIT, because, along with cash flows from
operating activities, investing activities and financing activities, it
provides investors with an understanding of the ability of Old Patriot REIT
to incur and service debt and make capital expenditures.
(4) Cash available for distribution represents funds from operations, as
adjusted for certain non-cash items (e.g. non-real estate related
depreciation and amortization), less reserves for capital expenditures.
(5) The number of OP Units used in the calculation is based on the equivalent
number of shares of Old Patriot REIT Common Stock after giving effect to
the change in the OP Unit conversion factor which coincides with the 2-for-
1 stock split, the conversion of shares in the Cal Jockey Merger and the
1.927-for-1 stock split.
(6) Historical Lessee expenses represent management fees paid to the Operators
and Lessee overhead expenses, net of dividend and interest income earned by
the Lessees.
37
<PAGE>
CALIFORNIA JOCKEY CLUB AND BAY MEADOWS OPERATING COMPANY
SUMMARY HISTORICAL FINANCIAL DATA
The following tables set forth historical financial information for Cal
Jockey and Bay Meadows, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Cal Jockey and Bay Meadows incorporated by reference into this Joint
Proxy Statement/Prospectus.
CALIFORNIA JOCKEY CLUB AND
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SUMMARY COMBINED SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,985 $44,993 $51,575 $50,709 $53,932 $24,754
Net income (loss)...... 2,150(1) 1,153(1) 4,212 4,200 (761) (120)
Net income (loss) per
share................. 0.19(1) 0.10(1) 0.38 0.38 (0.07) (0.01)
Cash dividends per
share................. 0.31 0.16 0.31 0.34 0.21 0.19
Weighted average number
of common
shares outstanding.... 11,106 11,092 11,086 11,100 11,106 11,106
Balance Sheet Data:
Total assets........... $33,999 $32,414 $36,786 $37,935 $27,676 $26,497
Stockholders' equity... 22,554 21,981 22,718 23,107 21,465 18,056
</TABLE>
(Note on page 40)
38
<PAGE>
CALIFORNIA JOCKEY CLUB
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
--------------------------------------------- ENDED
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $ 4,736 $ 3,984 $ 5,176 $ 5,241 $ 5,412 $ 3,732
Net income (loss)...... 2,854(1) 980(1) 3,620 3,723 (1,216) 597
Net income (loss) per
share................. 0.26(1) 0.09(1) 0.33 0.34 (0.11) 0.05
Cash dividends per
share................. 0.31 0.16 0.31 0.34 0.21 0.19
Weighted average number
of common
shares outstanding.... 11,125 11,096 11,086 11,100 11,106 11,106
Balance Sheet Data:
Total assets........... $23,950 $21,914 $22,129 $22,147 $23,374 $21,959
Stockholders' equity... 22,906 21,825 21,970 21,878 19,781 17,089
</TABLE>
(Note on the following page)
39
<PAGE>
BAY MEADOWS OPERATING COMPANY AND SUBSIDIARY
SUMMARY CONSOLIDATED SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RACING DAYS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
---------------------------------------- ENDED
1992 1993 1994 1995 1996 JUNE 30, 1997
------- ------- ------- ------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Number of live racing
days................... 111 104 113 108 115 44
Operating Data:
Revenues............... $48,537 $44,642 $51,187 $50,256 $53,472 $23,063
Net income (loss)...... (692) 173 592 477 455 (717)
Net income (loss) per
share................. (0.06) 0.02 0.05 0.04 0.04 (0.06)
Cash dividends per
share................. -- -- -- -- -- --
Weighted average number
of common
shares outstanding.... 11,086 11,086 11,086 11,100 11,106 11,106
Balance Sheet Data:
Total assets........... $11,263 $10,821 $16,648 $16,357 $ 6,634 $ 5,837
Stockholders' equity
(deficit)............. (17) 156 748 1,229 1,684 967
</TABLE>
- --------
(1) Includes a charge recorded as a result of a litigation settlement of $1,400
($0.13 per share) in 1993 and $350 ($0.03 per share) in 1992.
40
<PAGE>
WYNDHAM HOTEL CORPORATION
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following tables set forth summary consolidated historical financial
information for Wyndham, which should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Wyndham incorporated by reference into this Joint Proxy
Statement/Prospectus.
WYNDHAM HOTEL CORPORATION
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS
---------------------------------------------- ENDED
1992 1993 1994 1995 1996 JUNE 30, 1997
-------- -------- -------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenue........... $ 56,802 $ 61,277 $ 76,266 $ 87,890 $148,075 $106,341
Operating income........ 8,419 7,094 12,337 14,625 26,003 18,441
Net income.............. 163 1,654 6,265 7,949 23,966 6,826
Net income per share.... N/A N/A N/A N/A $ 1.20 $ .34
Weighted average number
of common shares
outstanding............ N/A N/A N/A N/A 20,018 20,018
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF
1992 1993 1994 1995 1996 JUNE 30, 1997
-------- -------- -------- -------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $108,647 $113,465 $113,276 $133,403 $242,962 $276,253
Total partners' capital
and stockholders'
equity (deficit)....... (7,303) (1,488) 1,716 17,557 75,584 85,195
</TABLE>
41
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Patriot Operating Company and should be read in conjunction with, and
are qualified in their entirety by, the historical financial statements and
notes thereto of Old Patriot REIT, Cal Jockey and Bay Meadows incorporated by
reference into this Joint Proxy Statement/Prospectus. This information should
also be read in conjunction with, and is qualified in its entirety by, the pro
forma financial statements and notes thereto located elsewhere in this Joint
Proxy Statement/Prospectus. The pro forma operating information is presented as
if the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain
other transactions (which include (i) the sale of substantially all of the Cal
Jockey land to an affiliate of PaineWebber; (ii) the leaseback of the land on
which the Racecourse is situated from the PaineWebber affiliate to Patriot
REIT; (iii) the sublease of the Racecourse land and related improvements from
Patriot REIT to Patriot Operating Company; (iv) the leasing of certain land
from Patriot REIT to Borders, Inc.; (v) the acquisition of 23 hotels by Patriot
REIT (excluding the Park Shore Hotel); (vi) the funding of $103,000 in mortgage
notes to affiliates of CHC Lease Partners; (vii) the replacement of the old
line of credit facility with the Revolving Credit Facility and the Term Loan;
(viii) the acquisition of a participating note; (ix) consummation of the
offering of 10,580,000 Paired Shares; (x) the lease of 59 hotel properties to
Patriot Operating Company; and (xi) the acquisition of 24 hotels, the private
placement of equity securities and the public offering of common stock, which
were consummated by Old Patriot REIT during 1996) had occurred on January 1,
1996. The pro forma combined balance sheet data of Patriot REIT and Patriot
Operating Company is presented as if the Cal Jockey Merger and certain other
recent transactions, as described above, had occurred as of June 30, 1997. The
pro forma financial statements which are adjusted to account for the Wyndham
Transactions begin on page 207, and the pro forma financial statements which
are adjusted to account for the WHG Merger begin on page 229.
PATRIOT REIT AND PATRIOT OPERATING COMPANY
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-----------------------------
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, 1996 1997
----------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue.................................. $686,236 $ 371,124
Income before income tax provision and minority
interests..................................... 41,439 36,433
Net income applicable to common shareholders... $ 32,504 $ 29,806
PER SHARE DATA:
Net income per common share.................... $ 0.44 $ 0.40
======== ==========
Weighted average number of common shares and
common share equivalents outstanding.......... 73,516 74,045
======== ==========
<CAPTION>
JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Investment in hotel and resort properties and
land held for sale, at cost, net.............. $1,591,435
Investment in racecourse facility and related
improvements, net............................. 21,565
Total assets................................... 2,012,425
Total debt..................................... 766,350
Minority interest in the Patriot Partnerships.. 271,495
Shareholders' equity........................... 904,764
</TABLE>
(Notes on page 45)
42
<PAGE>
PATRIOT REIT
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $222,110 $122,956
Income before minority interests............. 66,921 41,117
Net income applicable to common
shareholders................................ $ 54,479 $ 33,589
PER SHARE DATA:
Net income per common share.................. $ 0.74 $ 0.45
======== ========
Weighted average number of common shares and
common share equivalents outstanding........ 73,516 74,045
======== ========
</TABLE>
PATRIOT OPERATING COMPANY
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $647,772 $349,462
Loss before income tax provision and minority
interests................................... (25,652) (4,769)
Net income (loss) applicable to common
shareholders................................ $(21,975) $ (3,783)
PER SHARE DATA:
Net income (loss) per common share........... $ (0.30) $ (0.05)
======== ========
Weighted average number of common shares and
common share equivalents outstanding........ 73,516 74,045
======== ========
</TABLE>
(Notes on page 45)
43
<PAGE>
COMBINED LESSEES
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except CHC Lease
Partners, PAH RSI Lessee and Grand Heritage Leasing, L.L.C.) and should be read
in conjunction with, and are qualified in their entirety by, the historical
financial statements and notes thereto of Old Patriot REIT and NorthCoast
Lessee incorporated by reference into this Joint Proxy Statement/Prospectus.
This information should also be read in conjunction with the pro forma
financial statements and notes thereto of the Combined Lessees located
elsewhere in this Joint Proxy Statement/Prospectus. The pro forma operating
information is presented as if the 18 hotels that Patriot REIT leases to the
Lessees pursuant to Participating Leases (excluding the Park Shore Hotel) had
been leased as of January 1, 1996. The pro forma financial data assumes the 25
hotels formerly leased to CHC Lease Partners are leased to Patriot Operating
Company, the eight hotels formerly leased to PAH RSI Lessee are leased to
Patriot Operating Company and the three hotel leases held by Grand Heritage
Leasing, L.L.C. were acquired by Patriot Operating Company.
<TABLE>
<CAPTION>
PRO FORMA(2)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue.................................. $88,410 $46,264
Food and beverage............................. 36,878 19,146
Telephone and other hotel revenue............. 7,837 3,919
------- -------
Total revenue................................. 133,125 69,329
Hotel operating expenses...................... 90,929 45,863
Participating Lease payments(3)............... 41,749 21,654
------- -------
Income before Lessee expenses................. 447 1,812
Lessee expenses(4)............................ 3,914 1,353
------- -------
Net income (loss)............................. $(3,467) $ 459
======= =======
</TABLE>
(Notes on following page)
44
<PAGE>
NOTES TO PATRIOT REIT, PATRIOT OPERATING COMPANY AND COMBINED LESSEES SUMMARY
FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot REIT's
and Patriot Operating Company's combined financial position or Patriot
REIT's, Patriot Operating Company's or the Lessees' results of operations
actually would have been if the Cal Jockey Merger, the GAH Acquisition, the
CHCI Merger and certain other transactions (including (i) the lease of 59
hotel properties to Patriot Operating Company, (ii) the sale of
substantially all of the Cal Jockey land to the PaineWebber affiliate,
(iii) the leaseback of the land on which the Racecourse is situated from
the PaineWebber affiliate to Patriot REIT, (iv) the sublease of the
Racecourse land and related improvements from Patriot REIT to Patriot
Operating Company, (v) the leasing of certain land from Patriot REIT to
Borders, Inc., (vi) the acquisition of 23 hotels by Patriot REIT (excluding
the Park Shore Hotel), (vii) the funding of $103,000 in mortgage notes to
affiliates of CHC Lease Partners, (viii) the replacement of the old line of
credit facility with the Revolving Credit Facility and the Term Loan, (ix)
the acquisition of a participating note and (x) the consummation of the
offering of 10,580,000 Paired Shares) had in fact occurred on such date or
at the beginning of the period presented, or to project the results of
operations of Patriot REIT or Patriot Operating Company for any future
periods.
Additionally, if the interest rate increases by 0.25%, the resulting pro
forma net income would be $31,186 and $29,145, or $0.42 and $0.39 per common
paired share for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Cal Jockey
Merger and certain other transactions had in fact occurred at the beginning
of the period indicated, or to project the results of operations of the
Lessees for any future periods. The Lessees' pro forma financial data
presented does not include the operations of CHC Lease Partners, which
leased 25 hotels, PAH RSI Lessee, which leased eight hotels, and Grand
Heritage Leasing, L.L.C. which leased three hotels. The pro forma financial
data assumes these hotels are leased to Patriot Operating Company.
(3) Participating lease payments from the Lessees to Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease year.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 100,000 OP Units of the Patriot Partnerships, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
45
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Wyndham International and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Old Patriot REIT, Cal Jockey, Bay Meadows and Wyndham incorporated
by reference into this Joint Proxy Statement/Prospectus and by the combined
historical financial statements of the Crow Family Hotel Partnerships included
elsewhere in this Joint Proxy Statement/Prospectus. This information should
also be read in conjunction with the pro forma financial statements and notes
thereto located elsewhere in this Joint Proxy Statement/Prospectus. The pro
forma operating information is presented as if the Merger and the Related
Transactions and the Crow Assets Acquisition (collectively, the "Wyndham
Transactions"), the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and
certain other transactions (which include (i) the sale of substantially all of
the Cal Jockey land to an affiliate of PaineWebber; (ii) the leaseback of the
land on which the Racecourse is situated from the PaineWebber affiliate to
Patriot REIT; (iii) the sublease of the Racecourse land and related
improvements from Patriot REIT to Patriot Operating Company; (iv) the leasing
of certain land from Patriot REIT to Borders, Inc.; (v) the acquisition of 23
hotels by Patriot REIT (excluding the Park Shore Hotel); (vi) the funding of
$103,000 in mortgage notes to affiliates of CHC Lease Partners; (vii) the
replacement of the old line of credit facility with the Revolving Credit
Facility and the Term Loan; (viii) the acquisition of a participating note;
(ix) consummation of the offering of 10,580,000 Paired Shares; (x) the lease of
61 hotel properties to Wyndham International; and (xi) the acquisition of 24
hotels, the private placement of equity securities and the public offering of
common stock, which were consummated by Old Patriot REIT during 1996) had
occurred on January 1, 1996. The pro forma combined balance sheet data of
Patriot REIT and Wyndham International is presented as if the Wyndham
Transactions and the Cal Jockey Merger and certain other transactions, as
described above, had occurred as of June 30, 1997.
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
----------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................. $1,020,041 $563,292
Income before income tax provision and
minority interests....................... 16,069 25,702
Net income applicable to common
shareholders............................. $ 18,851 $ 25,839
PER SHARE DATA:
Net income per common paired share........ $ 0.19 $ 0.26
========== ========
Weighted average number of common shares
and common share equivalents
outstanding.............................. 99,579 100,108
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in hotel and resort properties and land held for
sale.......................................................... $2,367,677
Investment in Racecourse facility and related improvements..... 21,565
Total assets................................................... 3,374,180
Total debt..................................................... 1,451,830
Minority interests in the Patriot Partnerships................. 271,495
Shareholders' equity........................................... 1,470,585
</TABLE>
(Notes on page 49)
46
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $300,459 $174,550
Income before income tax provision and
minority interests.......................... 33,785 34,871
Net income applicable to common
shareholders................................ $ 27,721 $ 29,565
PER SHARE DATA:
Net income per common share.................. $ 0.28 $ 0.30
======== ========
Weighted average number of common shares and
common share equivalents outstanding........ 99,579 100,108
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $990,096 $546,620
Income (loss) before income tax provision and
minority interest........................... (22,395) (8,935)
Net income (loss) applicable to common
shareholders................................ $ (8,870) $ (3,726)
PER SHARE DATA:
Net income (loss) per common share........... $ (0.09) $ (0.04)
======== ========
Weighted average number of common shares and
common share equivalents outstanding........ 99,579 100,108
======== ========
</TABLE>
(Notes on page 49)
47
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
SUMMARY COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS)
The following table sets forth combined pro forma operating information for
the Combined Lessees (which includes all of the Lessees except CHC Lease
Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc. and Grand Heritage Leasing,
L.L.C.) and should be read in conjunction with, and are qualified in their
entirety by, the historical financial statements and notes thereto of Old
Patriot REIT and NorthCoast Lessee incorporated by reference into this Joint
Proxy Statement/Prospectus. This information should also be read in conjunction
with the pro forma financial statement and notes thereto of the Combined
Lessees located elsewhere in this Joint Proxy Statement/Prospectus. The pro
forma operating information is presented as if the 16 Patriot REIT hotels
leased to the Lessees (excluding the Park Shore Hotel, and the hotels leased to
CHC Lease Partners, PAH RSI Lessee, Crow Hotel Lessee, Inc., and Grand Heritage
Leasing, L.L.C.) pursuant to Participating Leases had been leased as of January
1, 1996.
<TABLE>
<CAPTION>
PRO FORMA(2)
-----------------------------
SIX MONTHS
ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, 1996 1997
----------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
FINANCIAL DATA:
Room revenue.................................... $72,182 $37,341
Food and beverage............................... 28,499 14,702
Telephone and other hotel revenue............... 5,906 2,972
------- -------
Total revenue................................... 106,587 55,015
Hotel operating expenses........................ 73,837 37,069
Participating Lease payments(3)................. 32,730 16,664
------- -------
Income before Lessee expenses................... 20 1,282
Lessee expenses(4).............................. 2,889 817
------- -------
Net income (loss)............................... $(2,869) $ 465
======= =======
</TABLE>
(Notes on following page)
48
<PAGE>
NOTES TO PATRIOT REIT, WYNDHAM INTERNATIONAL AND COMBINED LESSEES SUMMARY
FINANCIAL INFORMATION AS ADJUSTED FOR THE WYNDHAM TRANSACTIONS (IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot REIT's
and Wyndham International's combined financial position or Patriot REIT's,
Wyndham International's or the Combined Lessees' results of operations
actually would have been if the Wyndham Transactions (and the Cal Jockey
Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions) had in fact occurred on such date or at the beginning of the
period presented, or to project the results of operations of Patriot REIT,
Wyndham International or the Combined Lessees for any future periods.
The pro forma combined financial data assumes stockholders holding shares of
Wyndham Common Stock with an aggregate value of $100,000 elect to receive
cash, and the remaining outstanding shares of Wyndham Common Stock are
exchanged for Paired Shares. If no stockholders holding shares of Wyndham
Common Stock elect to receive cash and all outstanding Wyndham Common Stock
is exchanged for Paired Shares, the resulting combined pro forma net income
of Patriot REIT and Wyndham International would be $25,235 and $29,124 for
the year ended December 31, 1996 and the six months ended June 30, 1997,
respectively. The resulting pro forma net income per paired share would be
$0.25 and $0.28 for the year ended December 31, 1996 and the six months
ended June 30, 1997, respectively.
Additionally, if the interest rate increases by 0.25%, the resulting
combined pro forma net income of Patriot REIT and Wyndham International,
assuming stockholders holding shares of Wyndham Common Stock with an
aggregate value of $100,000 elect to receive cash, would be $15,968 and
$24,397, or $0.16 and $0.24 per common Paired Share for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively. If
all outstanding Wyndham Common Stock is exchanged for Paired Shares, the
resulting pro forma net income would be $22,563 and $27,571, or $0.22 and
$0.27 per common Paired Share for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.
(2) The pro forma information does not purport to represent what the Lessees'
combined results of operations actually would have been if the Wyndham
Transactions (and the Cal Jockey Merger, the GAH Acquisition, the CHCI
Merger and certain other recent transactions) had in fact occurred at the
beginning of the period indicated, or to project the results of operations
of the Lessees for any future periods. The Lessees' pro forma financial
data presented does not include the operations of CHC Lease Partners, which
leased 25 hotels, PAH RSI Lessee, which leased eight hotels, Crow Hotel
Lessee, Inc., which leased the Wyndham Garden Hotel--Midtown and the
Wyndham Greenspoint Hotel; and Grand Heritage Leasing, L.L.C., which leased
three hotels. The pro forma financial data assumes that the leases with
Crow Hotel Lessee, Inc. related to the Wyndham Garden Hotel--Midtown and
the Wyndham Greenspoint Hotel will be terminated in connection with the
Merger, and Patriot REIT will lease these hotel properties to Wyndham
International.
(3) Participating lease payments from the Lessees to Patriot REIT have been
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels as if January
1, 1996 were the beginning of the lease years.
(4) Lessee expenses include management fees paid to the Operators and Lessee
overhead expenses, net of historical dividend and interest income earned by
the Lessees. Pro forma Lessee net income excludes dividends on
approximately 100,000 OP Units of the Patriot Partnerships, which form a
portion of the required capitalization for certain of the Lessees and pro
forma interest income associated with the Lessees' working capital
balances.
49
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following tables set forth pro forma financial information for Patriot
REIT and Wyndham International and should be read in conjunction with, and are
qualified in their entirety by, the historical financial statements and notes
thereto of Old Patriot REIT, Cal Jockey, Bay Meadows and Wyndham incorporated
by reference into this Joint Proxy Statement/Prospectus and by the combined
historical financial statements of the Crow Family Hotel Partnerships and the
historical financial statements of WHG included elsewhere in this Joint Proxy
Statement/Prospectus. This information should also be read in conjunction with
the pro forma financial statements and notes thereto located elsewhere in this
Joint Proxy Statement/Prospectus. The pro forma operating information is
presented as if the WHG Merger and the Merger and the Related Transactions and
the Crow Assets Acquisition (collectively, the "Wyndham Transactions"), the Cal
Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions (which include (i) the sale of substantially all of the Cal Jockey
land to an affiliate of PaineWebber; (ii) the leaseback of the land on which
the Racecourse is situated from the PaineWebber affiliate to Patriot REIT;
(iii) the sublease of the Racecourse land and related improvements from Patriot
REIT to Patriot Operating Company; (iv) the leasing of certain land from
Patriot REIT to Borders, Inc.; (v) the acquisition of 23 hotels by Patriot REIT
(excluding the Park Shore Hotel); (vi) the funding of $103,000 in mortgage
notes to affiliates of CHC Lease Partners; (vii) the replacement of the old
line of credit facility with the Revolving Credit Facility and the Term Loan;
(viii) the acquisition of a participating note; (ix) consummation of the
offering of 10,580,000 Paired Shares; (x) the leasing of 61 hotels to Wyndham
International and (xi) the acquisition of 24 hotels, the private placement of
equity securities and the public offering of common stock, which were
consummated by Old Patriot REIT during 1996) had occurred on January 1, 1996.
The pro forma combined balance sheet data of Patriot REIT and Wyndham
International is presented as if the WHG Merger, the Wyndham Transactions, the
Cal Jockey Merger and certain other transactions, as described above, had
occurred as of June 30, 1997.
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SELECTED COMBINED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
----------------------------------
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- ----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue............................. $1,090,017 $604,115
Income before income tax provision and
minority interests....................... 20,149 35,930
Net income applicable to common
shareholders............................. $ 16,760 $ 30,644
PER SHARE DATA:
Net income per common paired share........ $ 0.16 $ 0.29
========== ========
Weighted average number of common shares
and common share equivalents
outstanding.............................. 104,583 105,169
========== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------
JUNE 30, 1997
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Investment in hotel and resort properties and land held for
sale.......................................................... $2,448,368
Investment in Racecourse facility and related improvements..... 21,565
Total assets................................................... 3,595,228
Total debt..................................................... 1,475,379
Minority interests in the Patriot Partnerships................. 271,495
Shareholders' equity........................................... 1,629,484
</TABLE>
(Note on page 52)
50
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WHG MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $300,459 $174,550
Income before income tax provision and
minority interests.......................... 33,785 34,871
Net income applicable to common
shareholders................................ $ 27,879 $ 29,734
PER SHARE DATA:
Net income per common share.................. $ 0.27 $ 0.28
======== ========
Weighted average number of common shares and
common share equivalents outstanding........ 104,583 105,169
======== ========
</TABLE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
SELECTED CONSOLIDATED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA(1)
-------------------------------
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1996 JUNE 30, 1997
----------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING DATA:
Total revenue................................ $1,060,072 $587,443
Income (loss) before income tax provision and
minority interest........................... (18,315) 1,293
Net income (loss) applicable to common
shareholders................................ $ (11,119) $ 910
PER SHARE DATA:
Net income (loss) per common share........... $ (0.11) $ 0.01
========== ========
Weighted average number of common shares and
common share equivalents outstanding........ 104,583 105,169
========== ========
</TABLE>
(Note on following page)
51
<PAGE>
NOTE TO PATRIOT REIT AND WYNDHAM INTERNATIONAL SUMMARY FINANCIAL INFORMATION AS
ADJUSTED FOR THE WHG MERGER (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma information does not purport to represent what Patriot REIT's
and Wyndham International's combined financial position or Patriot REIT's,
Wyndham International's or the Combined Lessees' results of operations
actually would have been if the WHG Merger (and the Wyndham Transactions,
the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain
other recent transactions) had in fact occurred on such date or at the
beginning of the period presented, or to project the results of operations
of Patriot REIT, Wyndham International or the Combined Lessees for any
future periods.
If the interest rate increases by 0.25%, the resulting combined pro forma
net income of Patriot REIT and Wyndham International would be $13,860 and
$29,193, or $0.13 and $0.28 per common Paired Share for the year ended
December 31, 1996 and the six months ended June 30, 1997, respectively.
52
<PAGE>
COMPARATIVE PER SHARE DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth the combined historical per share data,
unaudited pro forma per share data giving effect to the Merger and the Related
Transactions using the purchase method of accounting and the equivalent
unaudited pro forma combined per share amounts for each of Old Patriot REIT,
Cal Jockey and Bay Meadows, Patriot REIT and Patriot Operating Company, and
Wyndham. The pro forma combined data are not necessarily indicative of actual
financial position or future operating results or that which would have
occurred or will occur upon consummation of the Merger and the Related
Transactions.
The information shown below should be read in conjunction with (i) the
consolidated financial statements and notes thereto of Old Patriot REIT, Cal
Jockey and Bay Meadows, and Patriot REIT and Patriot Operating Company
incorporated herein by reference, (ii) the consolidated financial statements
and notes thereto of Wyndham incorporated herein by reference and (iii) the pro
forma condensed combined financial statements, including the notes thereto,
which are contained in this Joint Proxy Statement/Prospectus.
Unless otherwise indicated, all references to the number of shares and per
share amounts related to Old Patriot REIT, Cal Jockey and Bay Meadows, and
Patriot REIT and Patriot Operating Company have been restated to reflect the
impact of (i) the conversion of each share of Old Patriot REIT Common Stock
into 0.51895 Paired Shares issued in the Cal Jockey Merger, (ii) the 1.927-for-
1 stock split on the Paired Shares effected in the form of a stock dividend
distributed on July 25, 1997 to shareholders of record on July 15, 1997, and
(iii) the 2-for-1 stock split on Old Patriot REIT Common Stock effected in the
form of a stock dividend distributed on March 18, 1997 to shareholders of
record on March 7, 1997, as applicable.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
------------------------------------- --------------------------------------
PRO WYNDHAM PRO WYNDHAM
HISTORICAL FORMA (1) EQUIVALENT (3) HISTORICAL FORMA (2) EQUIVALENT (3)
---------- ----------- -------------- ----------- ----------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net Income/(Loss):
Old Patriot REIT........ $ 1.06 $ 0.52
Cal Jockey/Bay Meadows.. (0.07) (0.01)
Patriot REIT/Patriot
Operating Company(4)... 0.44 0.40
Wyndham................. 1.20 0.26 0.34 0.36
Patriot REIT/Wyndham
International(4)....... 0.19 0.26
Cash
Distributions/Dividends:
Old Patriot REIT........ $0.9825 $0.585
Cal Jockey/Bay Meadows.. 0.21 0.19
Patriot REIT/Patriot
Operating Company...... N/A N/A
Wyndham................. -- N/A -- N/A
Patriot REIT/Wyndham
International.......... N/A N/A
Book Value per Common
Share(5):
Old Patriot REIT........ $ 10.02 $ 9.95
Cal Jockey/Bay Meadows.. 1.93 1.63
Patriot REIT/Patriot
Operating Company...... 12.33 12.35
Wyndham................. 3.50 20.28 3.94 20.25
Patriot REIT/Wyndham
International.......... 14.78 14.76
</TABLE>
(Notes on following page)
53
<PAGE>
NOTES TO COMPARATIVE PER SHARE DATA (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(1) The pro forma combined per share data for Patriot REIT and Patriot
Operating Company for the year ended December 31, 1996 is presented as if
the Cal Jockey Merger, the GAH Acquisition, the CHCI Merger and certain
other recent transactions (which include (i) the sale of substantially all
of the Cal Jockey land to an affiliate of PaineWebber; (ii) the leaseback
of the land on which the Racecourse is situated from the PaineWebber
affiliate to Patriot REIT; (iii) the sublease of the Racecourse land and
related improvements from Patriot REIT to Patriot Operating Company; (iv)
the leasing of certain land from Patriot REIT to Borders, Inc.; (v) the
acquisition of 23 hotels by Patriot REIT (excluding the Park Shore Hotel);
(vi) the funding of $103,000 in mortgage notes to affiliates of CHC Lease
Partners; (vii) the replacement of the old line of credit facility with the
Revolving Credit Facility and the Term Loan; (viii) the acquisition of a
participating note; (ix) consummation of the Offering of 10,580,000 Paired
Shares; (x) the acquisition of 24 hotels, the private placement of equity
securities and the public offering of common stock, which were consummated
by Old Patriot REIT during 1996) had occurred as of January 1, 1996; and
(xi) the leasing of 61 hotels to Wyndham International.
The pro forma combined per share data for Patriot REIT and Wyndham
International for the year ended December 31, 1996 is presented as if the
Merger and the Related Transactions and the Crow Assets Acquisition, the Cal
Jockey Merger, the GAH Acquisition, the CHCI Merger and certain other recent
transactions described above had occurred as of January 1, 1996.
(2) The pro forma combined per share data for Patriot REIT and Patriot
Operating Company for the six months ended June 30, 1997 is presented as if
the Cal Jockey Merger and certain other recent transactions (described in
Note 1) had occurred as of January 1, 1997.
The pro forma combined per share data for Patriot REIT and Wyndham
International for the six months ended June 30, 1997 is presented as if the
Merger and the Related Transactions and the Crow Assets Acquisition, the Cal
Jockey Merger and certain other recent transactions (described in Note 1)
had occurred as of January 1, 1997.
(3) The equivalent pro forma combined share amounts of Wyndham are calculated
by multiplying pro forma net income per Paired Share, pro forma cash
distributions/dividends per Paired Share and pro forma book value per
Paired Share by a relative value ratio of existing Paired Shares to Wyndham
shares of 0.7289 to 1 (based on the Exchange Ratio of Wyndham Common Stock
to Paired Shares of 1.372 to 1).
(4) The pro forma combined net income per share for Patriot REIT and Patriot
Operating Company for the year ended December 31, 1996 and the six months
ended June 30, 1997 is based on weighted average Paired Shares and Paired
Share equivalents outstanding of 73,516,334 and 74,045,218, respectively.
The pro forma combined net income per share for Patriot REIT and Wyndham
International for the year ended December 31, 1996 and the six months ended
June 30, 1997 is based on weighted average Paired Shares and Paired Share
equivalents outstanding of 99,579,148 and 100,108,032, respectively.
(5) Book value per common share was calculated using stockholders' equity as
reflected in the historical and pro forma financial statements divided by
the number of shares of common stock outstanding. The pro forma book value
per common share of Patriot REIT and Patriot Operating Company is based on
total outstanding Paired Shares (including convertible preferred
securities) of 73,232,117 at December 31, 1996 and June 30, 1997. The pro
forma book value per common share of Patriot REIT and Wyndham International
is based on total outstanding Paired Shares (including convertible
preferred securities) of 99,659,556 at December 31, 1996 and June 30, 1997.
54
<PAGE>
COMPARATIVE MARKET DATA
On July 1, 1997, Old Patriot REIT merged with and into Cal Jockey and Cal
Jockey changed its name to Patriot REIT. The Cal Jockey Merger was accounted
for as a reverse acquisition and, consequently, the historical financial
information of Old Patriot REIT became the historical financial information of
Patriot REIT. The following table sets forth (i) the quarterly high and low
closing sale prices per share as reported on the NYSE of Old Patriot REIT
Common Stock (symbol "PAH") from September 27, 1995 (the date Old Patriot
REIT's shares began trading on the NYSE) through July 1, 1997, and the
distributions paid by Old Patriot REIT with respect to each such period, and
(ii) the quarterly high and low closing sale prices per share of the Paired
Shares as reported on the NYSE (symbol "PAH") from and after July 2, 1997. The
sales prices and distributions in the table through July 1, 1997 have been
adjusted to reflect Old Patriot REIT's 2-for-1 stock split in March 1997 and
the sales prices from and after July 1, 1997 have been adjusted to reflect the
Patriot Companies' July 1997 92.7% stock dividend. The Wyndham Common Stock has
traded on the NYSE (symbol "WYN") since May 20, 1996. Historically, no
dividends have been paid on shares of Wyndham Common Stock.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT REIT COMMON
STOCK AND PATRIOT OPERATING WYNDHAM
COMPANY COMMON STOCK(1) COMMON STOCK
------------------------------ -------------
PER SHARE
HIGH LOW DIVIDENDS HIGH LOW
-------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C>
1995:
First Quarter................. N/A N/A N/A N/A N/A
Second Quarter................ N/A N/A N/A N/A N/A
Third Quarter................. $12.81 $12.38 N/A N/A N/A
Fourth Quarter................ 12.88 11.75 $0.2400 N/A N/A
1996:
First Quarter................. 14.38 12.94 0.2400 N/A N/A
Second Quarter................ 14.81 13.38 0.2400 $24.00 $19.00
Third Quarter................. 16.81 14.06 0.2400 22.13 16.75
Fourth Quarter................ 21.75 16.31 0.2625 24.13 18.00
1997:
First Quarter................. 26.38 20.75 0.2625 31.25 23.13
Second Quarter................ 25.50 20.25 0.3225 (2) 32.88 26.00
Third Quarter ................ 32.00 23.36 0.2625 44.25 30.63
Fourth Quarter (through
November 3, 1997)............ 33.38 29.56 N/A 44.94 40.00
</TABLE>
- --------
(1) Represents shares of Old Patriot REIT Common Stock for periods through July
1, 1997, and Paired Shares for periods after July 1, 1997, except that
dividends have been paid only on shares of Patriot REIT Common Stock for
periods after July 1, 1997. No dividends have been paid on shares of
Patriot Operating Company Common Stock.
(2) Includes a $0.06 per share special dividend paid in connection with the Cal
Jockey Merger.
The following table sets forth the last reported sales prices per Paired
Share and per share of Wyndham Common Stock (i) on April 11, 1997, the last
trading day preceding public announcement of the execution of a definitive
agreement pursuant to which Patriot REIT would acquire Wyndham and (ii) on
November 3, 1997.
<TABLE>
<CAPTION>
PAIRED SHARES OF
PATRIOT REIT COMMON
STOCK AND PATRIOT OPERATING WYNDHAM
COMPANY COMMON STOCK(1) COMMON STOCK
--------------------------- ------------
<S> <C> <C>
April 11, 1997......................... $22.25 $29.63
November 3, 1997....................... 31.50 43.06
</TABLE>
- --------
(1)Represents shares of Old Patriot REIT Common Stock as of April 11, 1997 and
Paired Shares as of November 3, 1997.
BECAUSE THE MARKET PRICE OF THE PAIRED SHARES AND THE MARKET PRICE OF THE
WYNDHAM COMMON STOCK ARE SUBJECT TO FLUCTUATION, STOCKHOLDERS ARE URGED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR THE COMMON STOCK.
55
<PAGE>
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES FOR PATRIOT REIT
The following table sets forth the historical consolidated ratios of earnings
to fixed charges for Patriot REIT for the periods shown:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
SIX MONTHS ENDED -----------------------
JUNE 30, 1997 1996 1995
---------------- -----------------------
<S> <C> <C> <C>
Ratio............................... 2.55x 7.00x 80.37x(a)
</TABLE>
- --------
(a) Patriot REIT commenced operations on October 2, 1995.
The ratios of earnings to fixed charges were computed by dividing earnings by
fixed charges. For this purpose, earnings consist of pre-tax income from
continuing operations plus fixed charges. Fixed charges consist of interest
expense and the amortization of debt issuance costs. To date, Patriot REIT has
not issued any Preferred Stock; therefore, the ratios of earnings to combined
fixed charges and Preferred Stock dividend requirements are the same as the
ratios of earnings to fixed charges presented above.
DISTRIBUTION AND DIVIDEND POLICY
The Patriot Companies
Old Patriot REIT paid a regular quarterly dividend of $0.24 per share of Old
Patriot REIT Common Stock for each of the first three quarters of 1996, a
quarterly dividend of $0.2625 per share of Old Patriot REIT Common Stock for
the fourth quarter of 1996 and the first two quarters of 1997. Such dividend
amounts represent dividends of $0.9825 per share for the full year of 1996. In
addition, in connection with the Cal Jockey Merger, Old Patriot REIT paid a
special dividend of $0.06 per share on June 30, 1997. Patriot REIT paid a
regular quarterly dividend of $0.2625 per share of Patriot REIT Common Stock
for the third quarter of 1997. Patriot REIT's current regular quarterly
dividend of $0.2625 represents an annualized dividend of $1.05 per share. On
November 5, 1997, Patriot REIT announced that its Board of Directors had voted
to increase Patriot REIT's quarterly dividend to $0.32 per share for the fourth
quarter of 1997. This increase in Patriot REIT's dividend represents an
annualized dividend for 1998 of $1.28 per share. Historically, Patriot
Operating Company has not paid dividends.
Distributions by Patriot REIT to the extent of its current and accumulated
earnings and profits for federal income tax purposes generally are taxable to
stockholders as ordinary dividend income unless properly designated as capital
gain dividends. Distributions in excess of current and accumulated earnings and
profits are treated as a non-taxable reduction of the stockholder's basis in
its shares of Patriot REIT Common Stock to the extent thereof, and thereafter
as taxable gain. Distributions that are treated as a reduction of the
stockholder's basis in its shares of Patriot REIT Common Stock will have the
effect of deferring taxation until the sale of the stockholder's shares.
Patriot REIT has determined that, for federal income tax purposes, none of the
$0.9825 and $0.585 per share dividends paid by Old Patriot REIT for 1996 and
for the year to date for 1997, respectively, exceeded Patriot REIT's earnings
and profits. Given the dynamic nature of Patriot REIT's acquisition strategy
and the fact that any future acquisitions could alter this calculation, no
assurances can be given regarding what percent of future distributions, if any,
will constitute return of capital for federal income tax purposes.
Distributions by Patriot REIT will be at the discretion of the Patriot REIT
Board and will depend on the actual cash flow of Patriot REIT, its financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Code and such other factors as the Patriot REIT Board
deems relevant. However, Patriot REIT currently intends to make dividend
distributions necessary to maintain its qualification as a REIT under the REIT
provisions of the Code. See "Risk Factors--REIT Tax Risks--Adverse Effects of
REIT Minimum Distribution Requirements."
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To maintain its qualification as a REIT following consummation of the Merger,
Patriot REIT will be required to distribute to its stockholders in the taxable
year in which the Merger occurs Wyndham's current and accumulated earnings and
profits. See "Risk Factors--REIT Tax Risks--Accumulated Earnings and Profits"
and "Certain Federal Income Tax Considerations--Merger Dividend."
For a discussion of the tax consequences on the payment of dividends by the
Patriot Companies, see "Certain Federal Income Tax Considerations--Federal
Income Taxation of Paired Shares."
Wyndham
Historically, Wyndham has retained its earnings for use in its business and
has not paid dividends on the shares of Wyndham Common Stock. In addition, the
terms of the Wyndham Revolving Credit Facility prohibit Wyndham from paying,
and the Wyndham Indenture limits Wyndham's ability to pay, dividends on the
Wyndham Common Stock.
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RISK FACTORS
Stockholders of Patriot REIT, Patriot Operating Company and Wyndham, in
considering whether to approve the Proposals, should consider, in addition to
the other information in this Joint Proxy Statement/Prospectus, the matters
discussed in this section.
Any statements in this Joint Proxy Statement/Prospectus, including the
documents that are incorporated by reference as set forth under "Available
Information" and "Incorporation of Documents by Reference," that are not
strictly historical are forward-looking statements within the meaning of the
safe harbor provision of the Private Securities Litigation Reform Act. These
statements include, among other things, statements regarding the intent,
belief or expectations of the Patriot Companies and Wyndham and their
directors and officers with respect to, (i) the declaration or payment of
distributions by the Patriot Companies, (ii) the consummation of the Merger
and the Related Transactions and the proposed CHCI Merger and the proposed WHG
Merger, (iii) the ownership, management and operation of hotels, (iv)
potential acquisitions or dispositions of properties, assets or other public
or private companies by the Patriot Companies including the Crow Assets
Acquisition, (v) the policies of the Patriot Companies regarding investments,
acquisitions, dispositions, financings, conflicts of interest and other
matters, (vi) Patriot REIT's qualification as a REIT under the Code and the
"grandfathering" rule under Section 269B of the Code, (vii) the hotel and
lodging industry and real estate markets in general, (viii) the availability
of debt and equity financing, including the Term Loan, (ix) interest rates,
(x) general economic conditions, and (xi) trends affecting the Patriot
Companies' financial condition or results of operations. Stockholders are
cautioned that, while forward-looking statements reflect the respective
companies' good faith beliefs, they are not guarantees of future performance
and involve known and unknown risks and uncertainties, and that actual results
may differ materially from those in the forward-looking statements as a result
of various factors. The accompanying information in this section, as well as
those contained in the documents set forth under "Available Information" and
"Incorporation of Documents by Reference," identify certain factors that could
cause such differences.
FAILURE TO MANAGE RAPID GROWTH AND INTEGRATE OPERATIONS FOLLOWING THE MERGER
Patriot REIT is currently experiencing a period of rapid growth. Based upon
the respective portfolios of the Patriot Companies and Wyndham at November 3,
1997, after giving effect to the Merger and the Related Transactions and the
Crow Assets Acquisition, the Patriot Companies will have an aggregate hotel
portfolio, including owned, managed, leased and franchised hotels, consisting
of 190 hotels in operation, with an aggregate of over 45,700 rooms. Such
portfolio will consist of 113 owned hotels, 13 hotels leased from independent
third parties, 56 managed hotels and 8 franchised hotels. The Patriot
Companies' aggregate portfolio following the Merger would represent an
increase in the Patriot Companies' rooms portfolio of over 41,500 rooms since
the Initial Offering. The integration of departments, systems and procedures
of the Patriot Companies with those being acquired in connection with the
Merger and the Related Transactions, the Crow Assets Acquisition, and those
that may be acquired in connection with the CHCI Merger and the WHG Merger,
presents a significant management challenge, and any failure to successfully
integrate such companies and properties into the Patriot Companies' management
and operating structures could have a material adverse effect on the results
of operations and financial condition of the Patriot Companies.
SUBSTANTIAL DEBT OBLIGATIONS
Subsequent to the consummation of the Merger and the Related Transactions
and the Crow Assets Acquisition, the Patriot Companies will have approximately
$1.5 billion of pro forma combined total indebtedness as of June 30, 1997
(including the $100 million of Cash Consideration to be paid by Patriot REIT
pursuant to Cash Elections), as compared to pro forma combined total
indebtedness of the Patriot Companies of $766.4 million as of June 30, 1997.
The pro forma ratio of combined debt to total market capitalization of the
Patriot Companies, assuming an aggregate indebtedness of approximately $1.5
billion, will be approximately 28.7%. The calculation of the pro forma ratio
of combined debt to total market capitalization is based on a $31 1/2 closing
price of the Paired Shares on November 3, 1997. The Patriot Companies also may
borrow additional amounts from the same or other lenders in the future, may
assume debt in connection with acquisitions or may
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issue corporate debt securities in public or private offerings. Substantially
all of the Patriot Companies' combined debt bears interest at a variable rate
and Patriot REIT currently expects that the Term Loan, if consummated, will
bear interest at a variable rate. Neither the Restated Charters nor the
Restated Bylaws limit the amount of indebtedness Patriot REIT or Wyndham
International may incur. See "The Companies--Surviving Companies."
There can be no assurance that the Patriot Companies, following consummation
of the Merger and the Related Transactions, and the Crow Assets Acquisition,
will be able to meet their debt service obligations and, to the extent that
they cannot, the Patriot Companies risk the loss of some or all of their
assets, including their hotels, to foreclosure. Adverse economic conditions
could cause the terms on which borrowings become available to be unfavorable.
In such circumstances, if Patriot REIT or Wyndham International is in need of
capital to repay indebtedness in accordance with its terms or otherwise, it
could be required to liquidate one or more investments in properties at times
which may not permit realization of the maximum return on such investments.
The foregoing risks associated with debt obligations of the Patriot
Companies may adversely affect the market price of the Paired Shares following
the Merger and may inhibit the ability of the Patriot Companies to raise
capital in both the public and private markets following the consummation of
the Merger and the Related Transactions.
DILUTION TO EARNINGS CAUSED BY ACQUISITION OF WYNDHAM
The Merger and the Related Transactions have a dilutive effect on net income
per share and FFO per share on a pro forma combined basis for 1996 and the six
months ended June 30, 1997. While the Merger and the Related Transactions,
together with the Crow Assets Acquisition, are anticipated to be accretive to
FFO per share in future periods, no assurance can be given that such accretion
will be realized. The Unaudited Pro Forma Combined Financial Statements
contained herein illustrate the effect of the Merger and the Related
Transactions on the net income per share for the year ended December 31, 1996
and the six months ended June 30, 1997. On a pro forma combined basis (post-
Merger) for the Patriot Companies (including the $100 million of Cash
Consideration to be paid by Patriot REIT pursuant to Cash Elections), net
income per share is $0.19 for the year ended December 31, 1996 and net income
per share is $0.26 for the six months ended June 30, 1997, as compared to
$0.44 and $0.40 for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively, on a pro forma combined basis (pre-Merger) for
the Patriot Companies. See "Unaudited Pro Forma Financial Statements."
CONFLICTS OF INTEREST BETWEEN PATRIOT REIT AND WYNDHAM INTERNATIONAL
Patriot REIT and Patriot Operating Company are separate corporate entities
with separate Boards of Directors. A majority of the directors of each of
Patriot REIT and Patriot Operating Company do not serve as directors or
officers of the other company. In addition, Patriot REIT and Patriot Operating
Company generally have different employees, separate creditors and are subject
to different state law licensing and regulatory requirements. As a result, the
interests of the Patriot REIT Board and the Patriot Operating Company Board
may conflict and such conflicts may possibly rise to disputes between the
companies like those that were experienced by Cal Jockey and Bay Meadows prior
to the Cal Jockey Merger. See "Description of Capital Stock--The Cooperation
Agreement."
Immediately following the Merger, Patriot REIT and Wyndham International
will continue as separate corporate entities with separate Boards of Directors
and a majority of the directors of each of Patriot REIT and Wyndham
International will not serve as directors or officers of the other company.
Patriot REIT and Wyndham International generally will have different
employees, separate creditors and will be subject to different state law
licensing and regulatory requirements. As a result, the interests of the
Patriot REIT Board and the Wyndham International Board following the Merger
may conflict and such conflicts may possibly rise to disputes between the
companies. However, unlike Patriot REIT and Patriot Operating Company
currently, following the Merger, Patriot REIT and Wyndham International will
have different executive officers, and accordingly, the risk that the
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interests of Patriot REIT and Wyndham International will conflict and that
disputes could arise between the two companies will be enhanced. Following the
Merger, Patriot REIT and Patriot Operating Company will have entered into the
Cooperation Agreement and will have several of the same directors, which
Patriot REIT and Patriot Operating Company believe will help decrease the
possibility of disagreements between Patriot REIT and Wyndham International
following the Merger. See "Description of Capital Stock--The Cooperation
Agreement." No assurance can be given, however, that the interests of the
officers and/or directors of one company will not conflict with their
interests as officers and/or directors of the other company or that their
actions as officers and/or directors of one company will not adversely affect
the interests of the other company. In addition, no assurance can be given
that conflicts will not arise between the companies or that such conflicts
will not have a material adverse effect on the results of operations and
financial condition of Patriot REIT and Wyndham International.
CONFLICTS OF INTEREST OF CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS OF
WYNDHAM
In considering the recommendation of the Wyndham Board to approve the Merger
Agreement and the Related Transactions, stockholders of Wyndham should be
aware that certain Crow Family Members, Bedrock and certain members of Wyndham
Senior Management have certain interests in, and will receive benefits as a
consequence of, the Merger and the Related Transactions and the Crow Assets
Acquisition that involve certain potential conflicts of interests.
In connection with the Merger, the Patriot REIT Partnership has entered into
the Omnibus Purchase and Sale Agreement, as well as eleven individual purchase
and sale agreements, with the Crow Family Entities providing for the Crow
Assets Acquisition. The Crow Family Entities are owned by certain Crow Family
Members (including Harlan R. Crow, a member of the Wyndham Board), certain
members of Wyndham Senior Management and certain other persons. Accordingly,
the decisions of Mr. Crow and Wyndham Senior Management relating to the
decision by Wyndham to effect the Merger, the consummation of which is
conditioned upon the closing of the Crow Assets Acquisition, raised issues
concerning certain potential conflicts of interest. In addition, in connection
with the Merger, the Patriot Companies entered into (or will succeed to by
operation of the Merger) various agreements with entities owned by certain
Crow Family Members, Bedrock and/or certain members of Wyndham Senior
Management relating to matters such as (i) the provision of centralized
reservation services and property management services currently provided to
Wyndham-branded hotels, (ii) the employment of certain members of Wyndham
Senior Management, and (iii) the registration for sale of the Paired Shares
received by such persons pursuant to the Stock Purchase Agreement and the
Merger Agreement. The Existing Wyndham Options (except in the case of one
option covering 14,577 shares of Wyndham Common Stock) also will fully vest
and be assumed by the Patriot Companies in connection with the Merger. In
addition, it is a condition to consummation of the Merger and the Crow Assets
Acquisition that Wyndham lend $10 million to the Anatole Operating Partnership
and that the terms of the related management agreement be modified on terms
generally favorable to the Patriot Companies (as successor to such agreement).
The decision to enter into these agreements in connection with the Merger, as
well certain other benefits which may be received by certain Crow Family
Members, Bedrock (Messrs. Whitman and Decker are members of the Wyndham Board)
and certain members of Wyndham Senior Management as a result of the Merger,
raised issues concerning certain potential conflicts of interest. In light of
such potential conflicts of interest, the Wyndham Board appointed the Wyndham
Special Committee. See "The Merger and Subscription--Interests of Certain
Officers, Directors and Stockholders of Wyndham" and "--Background of the
Merger."
REIT TAX RISKS
Dependence on Qualification as a REIT
Patriot REIT has operated, and following the Merger, Patriot REIT will
operate, in a manner designed to permit it to qualify as a REIT for federal
income tax purposes, but no assurance can be given that Patriot REIT has
operated or will be able to continue to operate in a manner so as to qualify
or remain so qualified. Qualification as a REIT involves the application of
highly technical and complex Code provisions for which there
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are only limited judicial or administrative interpretations. The complexity of
these provisions is greater in the case of a REIT that owns hotels and leases
them to an operating company with which its stock is paired. Qualification as
a REIT also involves the determination of various factual matters and
circumstances not entirely within Patriot REIT's control. In addition, Patriot
REIT's ability to qualify as a REIT is dependent upon its continued exemption
from the anti-pairing rules of Section 269B(a)(3) of the Code. Section
269B(a)(3) of the Code would ordinarily prevent a corporation from qualifying
as a REIT if its stock is paired with the stock of a corporation whose
activities are inconsistent with REIT status, such as Patriot Operating
Company and, following the Merger, Wyndham International. The "grandfathering"
rules governing Section 269B generally provide, however, that Section
269B(a)(3) does not apply to a paired REIT if the REIT and its paired
operating company were paired on June 30, 1983. There are, however, no
judicial or administrative authorities interpreting this "grandfathering" rule
in the context of a merger or otherwise. Moreover, if for any reason Cal
Jockey failed to qualify as a REIT in 1983, the benefit of the
"grandfathering" rule would not be available to Patriot REIT, in which case
Patriot REIT would not qualify as a REIT for any taxable year. On November 5,
1997, Representative William Archer, Chairman of the Ways and Means Committee
of the United States House of Representatives, publicly announced that he
plans to review this "grandfathering" rule to determine whether there should
be future restrictions on companies that are grandfathered. While
Representative Archer stated he does not plan to eliminate the grandfathering
rule, no assurance can be given that new legislation, new regulations,
administrative interpretations or court decisions will not change the tax laws
with respect to qualification as a REIT (including the "grandfathering" rules
of Section 269B) or the federal income tax consequences of such qualification.
The adoption of any such legislation, regulations or administrative
interpretations could have a material adverse effect on the results of
operations, financial condition and prospects of the Patriot Companies.
Qualification of Patriot REIT as a REIT for periods following the Merger also
generally depends on the REIT qualification of Patriot REIT for periods prior
to the Merger and the REIT qualification of Old Patriot REIT for periods prior
to the Cal Jockey Merger.
If Patriot REIT fails to qualify as a REIT, Patriot REIT will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at corporate rates. In addition, unless entitled to relief
under certain statutory provisions and subject to the discussion above
regarding the impact if Patriot REIT failed to qualify as a REIT in 1983,
Patriot REIT also will be disqualified from re-electing REIT status for the
four taxable years following the year during which qualification is lost.
Failure to qualify as a REIT would reduce the net earnings of Patriot REIT
available for distribution to stockholders because of the additional tax
liability to Patriot REIT for the year or years involved. In addition,
distributions would no longer be required to be made. To the extent that
distributions to stockholders would have been made in anticipation of Patriot
REIT's qualifying as a REIT, Patriot REIT might be required to borrow funds or
to liquidate certain of its investments to pay the applicable tax. The failure
to qualify as a REIT would also constitute a default under certain debt
obligations of Patriot REIT.
Patriot REIT believes that it has operated (and that prior to the Cal Jockey
Merger, Old Patriot REIT operated), and will operate through the Merger, in a
manner that permits Patriot REIT to qualify as a REIT under the Code for each
taxable year since its formation. Goodwin, Procter & Hoar llp, counsel for
Patriot REIT, has rendered an opinion regarding (i) Patriot REIT's
qualification as a REIT for periods prior to the Merger and (ii) Patriot
REIT's ability to qualify as a REIT following the Merger.
Adverse Effects of REIT Minimum Distribution Requirements
In order to qualify as a REIT, Patriot REIT is generally required each year
to distribute to its stockholders at least 95% of its taxable income
(excluding any net capital gain). In addition, if Patriot REIT disposes of
assets acquired from Wyndham during the ten-year period following the Merger,
Patriot REIT will be required to distribute at least 95% of the amount of any
"built-in gain" attributable to such assets that Patriot REIT recognizes in
the disposition, less the amount of any tax paid with respect to such
recognized built-in gain. See "Certain Federal Income Tax Considerations--REIT
Qualification--Built-In Gain Tax." Patriot REIT generally is subject to a 4%
nondeductible excise tax on the amount, if any, by which certain distributions
paid by it with respect to any calendar year are less than the sum of (i) 85%
of its ordinary income for that year, (ii) 95% of its capital gain net income
for that year, and (iii) 100% of its undistributed income from prior years.
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Patriot REIT intends to make distributions to its stockholders to comply
with the 95% distribution requirement and to avoid the nondeductible excise
tax. Patriot REIT's income consists primarily of its share of the income of
the Patriot REIT Partnership, and Patriot REIT's cash available for
distribution will consist primarily of its share of cash distributions from
the Patriot REIT Partnership. Differences in timing between the recognition of
taxable income and the receipt of cash available for distribution and the
seasonality of the hotel industry could require Patriot REIT to borrow funds
on a short-term basis to meet the 95% distribution requirement and to avoid
the nondeductible excise tax.
Distributions by the Patriot Companies are determined by their respective
Boards of Directors and depend on a number of factors, including the amount of
cash available for distribution, financial condition, any decision by either
Board of Directors to reinvest funds rather than to distribute such funds,
capital expenditures, the annual distribution requirements under the REIT
provisions of the Code (in the case of Patriot REIT) and such other factors as
either Board of Directors deems relevant. For federal income tax purposes,
distributions paid to stockholders may consist of ordinary income, capital
gains (in the case of Patriot REIT), nontaxable return of capital, or a
combination thereof. The Patriot Companies will provide stockholders with
annual statements as to the taxability of distributions.
Accumulated Earnings and Profits
To maintain its qualification as a REIT, following the Merger, Patriot REIT
will be required to distribute the current and accumulated earnings and
profits of Wyndham (as determined for federal income tax purposes). The
distribution will be taken into account by Patriot REIT's taxable U.S.
Stockholders as ordinary income to the extent it is made out of current or
accumulated earnings and profits, and will not be eligible for the dividends
received deduction generally available for corporations. See "Certain Federal
Income Tax Considerations--Federal Income Taxation of Holders of Paired
Shares."
Wyndham has agreed that, at the Closing Date, Wyndham will deliver to
Patriot REIT a statement of accumulated and current earnings and profits of
Wyndham (as determined for federal income tax purposes) as of a date not more
than 30 days prior to the Closing Date, together with evidence of such
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) from Coopers & Lybrand L.L.P. in a form
reasonably satisfactory to Patriot REIT, and a statement of estimated
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) as of the Closing Date. Wyndham further agreed
that prior to the Closing Date, it will cause Coopers & Lybrand L.L.P. to
agree (i) to deliver to Patriot REIT, prior to December 25, 1997, a statement
of accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) at the Effective Time and (ii) that Patriot REIT
shall be entitled to rely on such statement for purposes of preparing and
filing its federal, state, local and foreign tax returns required to be filed
by it, determining the amount of dividends to be paid to stockholders and
paying any taxes owed by it.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar llp has relied upon the representations of Patriot REIT to the effect
that it will distribute with respect to the taxable year in which the Merger
closes all earnings and profits inherited from Wyndham. If the IRS were to
determine that Wyndham's actual earnings and profits exceeded the amount
distributed, Patriot REIT would be disqualified as a REIT.
DEPENDENCE ON LESSEES AND PAYMENTS UNDER THE PARTICIPATING LEASES
Patriot REIT leases substantially all of its existing hotels, including
those hotels leased to Patriot Operating Company, to the Lessees pursuant to
separate Participating Leases. Patriot REIT's ability to make distributions to
stockholders depends primarily upon the ability of the Lessees to make rent
payments under the Participating Leases (which ability in turn is dependent
primarily on the Lessees' ability to generate sufficient revenues from those
hotels which are leased to them). A failure or delay to make such payments may
be caused by reductions in revenue from such hotels or in the net operating
income of the Lessees or otherwise. Any failure or delay by the Lessees in
making rent payments may adversely affect Patriot REIT's ability to make
distributions to stockholders.
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HOTEL INDUSTRY RISKS
Operating Risks
The primary businesses of the Patriot Companies are buying, selling, leasing
and managing hotels, and following the Merger, Wyndham International also will
engage in the business of franchising, which are subject to operating risks
common to the hotel industry. These risks include, among other things, (i)
competition for guests from other hotels, a number of which may have greater
marketing and financial resources and experience than the Patriot Companies
and the Lessees, (ii) increases in operating costs due to inflation and other
factors, which increases may not have been offset in past years, and may not
be offset in future years, by increased room rates, (iii) dependence on
business and commercial travelers and tourism, which business may fluctuate
and be seasonal, (iv) increases in energy costs and other expenses of travel,
which may deter travelers and (v) adverse effects of general and local
economic conditions. These factors could adversely affect the ability of the
Lessees and Wyndham International following the Merger to generate revenues
and to make lease payments to Patriot REIT and therefore Patriot REIT's
ability to make distributions to stockholders.
The Patriot Companies are also subject to the risk that in connection with
the acquisition of hotels and hotel operating companies it may not be possible
to transfer certain operating licenses, such as food and beverage licenses, to
the Lessees, the Operators or Patriot Operating Company, or to obtain new
licenses in a timely manner in the event such licenses cannot be transferred.
Although hotels can provide alcoholic beverages under interim licenses or
licenses obtained prior to the acquisition of these hotels, there can be no
assurance that these licenses will remain in effect until Patriot REIT or
Patriot Operating Company obtains new licenses or that new licenses will be
obtained. The failure to have alcoholic beverages licenses or other operating
licenses could adversely affect the ability of the affected Lessees, Operators
or Wyndham International to generate revenues and make lease payments to
Patriot REIT.
Operating Costs and Capital Expenditures; Hotel Renovation
Hotels, in general, have an ongoing need for renovations and other capital
improvements, particularly in older structures, including periodic replacement
or refurbishment of F, F & E. Under the terms of the Participating Leases,
Patriot REIT is obligated to establish a reserve to pay the cost of certain
capital expenditures at its hotels and pay for periodic replacement or
refurbishment of F, F & E. Additionally, the F, F & E obligations of Wyndham
will be assumed by Patriot REIT in the Merger. If capital expenditures exceed
Patriot REIT's expectations, the additional cost could have an adverse effect
on Patriot REIT's cash available for distribution. In addition, Patriot REIT
may acquire hotels where significant renovation is either required or
desirable. Renovation of hotels involves certain risks, including the
possibility of environmental problems, construction cost overruns and delays,
uncertainties as to market demand or deterioration in market demand after
commencement of renovation and the emergence of unanticipated competition from
other hotels.
Competition for Hotel Acquisition Opportunities
The Patriot Companies may be competing for investment opportunities with
entities that have substantially greater financial resources. These entities
may generally be able to accept more risk than the Patriot Companies can
prudently manage, including risks with respect to the creditworthiness of a
hotel operator or the geographic proximity of its investments. Competition may
generally reduce the number of suitable investment opportunities offered to
the Patriot Companies and increase the bargaining power of property owners
seeking to sell.
Additionally, Patriot REIT's ability to acquire additional hotels could be
negatively impacted by the paired share ownership structure and the Merger
because hotel management companies, franchisees and others who historically
approached Old Patriot REIT with acquisition opportunities in hopes of
establishing lessee or management relationships may not do so in the future
knowing that Patriot REIT will rely primarily on Wyndham International to
lease and/or manage the acquired properties. Such persons may instead provide
such acquisition opportunities to hotel companies that will allow them to
manage the properties following the sale. This could have a negative impact on
Patriot REIT's acquisition activities in the future.
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Seasonality
The hotel industry is seasonal in nature. Revenues at certain hotels are
greater in the first and second quarters of a calendar year and at other
hotels in the second and third quarters of a calendar year. Seasonal
variations in revenue at hotels may cause quarterly fluctuations in the
operating revenues of Wyndham International and the lease revenues of Patriot
REIT.
REAL ESTATE INVESTMENT RISKS
General Risks
Patriot REIT's investments are subject to varying degrees of risk generally
incident to the ownership of real property. The underlying value of Patriot
REIT's real estate investments and Patriot REIT's income and ability to make
distributions to its stockholders will be dependent upon the ability of the
Lessees, the Operators and Wyndham International to operate Patriot REIT's
hotels in a manner sufficient to maintain or increase revenues and to generate
sufficient income in excess of operating expenses to make rent payments under
their leases with Patriot REIT. Income from Patriot REIT's hotels may be
adversely affected by changes in national economic conditions, changes in
local market conditions due to changes in general or local economic conditions
and neighborhood characteristics, changes in interest rates and in the
availability, cost and terms of mortgage funds, the impact of present or
future environmental legislation and compliance with environmental laws, the
ongoing need for capital improvements, particularly in older structures,
changes in real estate tax rates and other operating expenses, adverse changes
in governmental rules and fiscal policies, adverse changes in zoning laws,
civil unrest, acts of God, including earthquakes and other natural disasters
(which may result in uninsured losses), acts of war and other factors which
are beyond the control of the Patriot Companies.
Value and Illiquidity of Real Estate
Real estate investments are relatively illiquid. The ability of Patriot REIT
to vary its portfolio in response to changes in economic and other conditions
will therefore be limited. If Patriot REIT must sell an investment, there can
be no assurance that Patriot REIT will be able to dispose of it in the time
period it desires or that the sales price of any investment will recoup or
exceed the amount of Patriot REIT's investment.
Property Taxes
The Patriot Companies' hotels and racing facilities are subject to real
property taxes. The real property taxes on hotel properties as well as the
racing facilities in which Patriot REIT invests may increase or decrease as
property tax rates change and as the value of the properties are assessed or
reassessed by taxing authorities. Additionally, as a result of the Merger,
certain of Patriot REIT's properties may be subject to reappraisal or
reassessment. If property taxes increase as a result of such reappraisals or
reassessments, the Patriot Companies' ability to make distributions to its
stockholders could be adversely affected.
Consents of Ground Lessor Required for Sale of Certain Hotels
Certain of Patriot REIT's hotels and the Racecourse are subject to ground
leases with third party lessors. In addition, Patriot REIT may acquire hotels
in the future that are subject to ground leases. Any proposed sale of a
property that is subject to a ground lease by Patriot REIT or any proposed
assignment of Patriot REIT's leasehold interest in the ground lease may
require the consent of third party lessors. As a result, Patriot REIT may not
be able to sell, assign, transfer or convey its interest in any such property
in the future absent the consent of such third parties, even if such
transaction may be in the best interests of the stockholders.
Environmental Matters
The operating costs of the Patriot Companies may be affected by the
obligation to pay for the cost of complying with existing environmental laws,
ordinances and regulations, as well as the cost of complying with
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future legislation. Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or operator of real
property may be liable for the costs of removal or remediation of hazardous or
toxic substances on, under, or in such property. Such laws often impose
liability whether or not the owner or operator knew of, or was responsible
for, the presence of such hazardous or toxic substances. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow by using
such real property as collateral. Persons who arrange for the transportation,
disposal or treatment of hazardous or toxic substances may also be liable for
the costs of removal or remediation of such substances at the disposal or
treatment facility, whether or not such facility is or ever was owned or
operated by such person. Certain environmental laws and common law principles
could be used to impose liability for releases of hazardous materials,
including ACMs, into the environment, and third parties may seek recovery from
owners or operators of real properties for personal injury associated with
exposure to released ACMs or other hazardous materials. Environmental laws may
also impose restrictions on the manner in which a property may be used or
transferred or in which businesses may be operated, and these restrictions may
require expenditures. In connection with the ownership and operation of any of
Patriot REIT's hotels, the Patriot Companies, the Lessees or the Operators may
be potentially liable for any such costs. The cost of defending against claims
of liability or remediating contaminated property and the cost of complying
with environmental laws could materially adversely affect Patriot REIT's
results of operations and financial condition. Phase I ESAs have been
conducted at all of Patriot REIT's hotels and the Racecourse by qualified
independent environmental engineers. The purpose of Phase I ESAs is to
identify potential sources of contamination for which any of Patriot REIT's
hotels or the Racecourse may be responsible and to assess the status of
environmental regulatory compliance. The ESAs have not revealed any
environmental liability or compliance concerns that Patriot REIT believes
would have a material adverse effect on its business, assets, results of
operations or liquidity, nor is Patriot REIT aware of any such liability or
concerns. Nevertheless, it is possible that these ESAs did not reveal all
environmental liabilities or compliance concerns or that material
environmental liabilities or compliance concerns exist of which Patriot REIT
is currently unaware. Patriot REIT has not been notified by any governmental
authority, and has no other knowledge of, any material noncompliance,
liability or claim relating to hazardous or toxic substances or other
environmental substances in connection with any of the hotels or the
Racecourse.
Compliance with Americans with Disabilities Act
Under the ADA, all public accommodations are required to meet certain
federal requirements related to access and use by disabled persons. A
determination that Patriot REIT or Wyndham International is not in compliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants. If Patriot REIT were required to make modifications to
comply with the ADA, the ability of the Patriot Companies to make expected
distributions to their stockholders could be adversely affected.
Uninsured and Underinsured Losses
Each of the Participating Leases and each of the leases relating to hotels
owned by Wyndham and leased to third parties (the "Wyndham Leases") specifies
comprehensive insurance to be maintained on each of the applicable leased
hotels, including liability, fire and extended coverage. Each of Patriot REIT
and Wyndham believes such specified coverage is of the type and amount
customarily obtained for or by an owner of hotels. Leases for subsequently
acquired hotels will contain similar provisions. However, there are certain
types of losses, generally of a catastrophic nature, such as earthquakes and
floods, that may be uninsurable or not economically insurable. The Boards of
Directors and management of each of the Patriot Companies will use their
discretion in determining amounts, coverage limits and deductibility
provisions of insurance, with a view to maintaining appropriate insurance
coverage on the investments of Patriot REIT or Wyndham International, as the
case may be, at a reasonable cost and on suitable terms. This may result in
insurance coverage that, in the event of a substantial loss, would not be
sufficient to pay the full current market value or current replacement cost of
the lost investment of Patriot REIT or Wyndham International, as the case may
be. Inflation, changes in building codes and ordinances, environmental
considerations, and other factors also might make it infeasible to use
insurance proceeds to replace the property after such property has been
damaged or destroyed. Under such
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circumstances, the insurance proceeds received by Patriot REIT or Wyndham
International might not be adequate to restore its economic position with
respect to such property.
Acquisition and Development Risks
The Patriot Companies currently intend to pursue acquisitions of additional
hotels and hotel operating companies and, under appropriate circumstances, may
pursue development opportunities. Acquisitions entail risks that such acquired
hotels or hotel operating companies will fail to perform in accordance with
expectations and that estimates of the cost of improvements necessary to
market, acquire and operate properties will prove inaccurate as well as
general risks associated with any new real estate or operating company
acquisition. In addition, hotel development is subject to numerous risks,
including risks of construction delays or cost overruns that may increase
project costs, new project commencement risks such as receipt of zoning,
occupancy and other required governmental approvals and permits and the
incurrence of development costs in connection with projects that are not
pursued to completion. The fact that Patriot REIT generally is required to
distribute 95% of its ordinary taxable income in order to maintain its
qualification as a REIT may limit Patriot REIT's ability to rely upon lease
income from its hotels or subsequently acquired properties to finance
acquisitions or new developments. As a result, if debt or equity financing
were not available on acceptable terms, further acquisitions or development
activities might be curtailed or Patriot REIT's cash available for
distribution might be adversely affected.
DEPENDENCE ON MANAGEMENT CONTRACTS
Management contracts are acquired, terminated, renegotiated or converted to
franchise agreements in the ordinary course of Wyndham's business. As of
November 3, 1997 Wyndham managed 45 hotels pursuant to management agreements
with various parties (after giving effect to the Merger and the Related
Transactions and the Crow Assets Acquisition). Of such managed hotels, 5
hotels will continue to be owned by Crow Family Members after giving effect to
the consummation of the Crow Assets Acquisition. Wyndham also manages 17
hotels owned by various affiliates of Bedrock, which owns approximately 10.5%
of the currently outstanding Wyndham Common Stock and will receive Paired
Shares in the Merger.
While the average remaining term of Wyndham's management contracts for
Wyndham brand hotels as of December 31, 1996 was approximately 14 years
(including renewals that Wyndham may elect to exercise), these management
contracts generally may be terminated by the owner of the hotel property if
Wyndham fails to meet certain performance standards, if the property is sold
to a third party, if the property owner defaults on indebtedness encumbering
the property and/or upon a foreclosure of the property. Other grounds for
termination of Wyndham's upscale hotel management contracts include a hotel
owner's election to close a hotel and certain business combinations involving
Wyndham in which the Wyndham name or current management team does not survive.
There can be no assurance that following consummation of the Merger, the
Patriot Companies will be able to replace terminated management contracts or
that the terms of renegotiated or converted contracts will be as favorable as
the terms that existed before such renegotiation or conversion. The Patriot
Companies also will be subject to the risk of deterioration in the financial
condition of a hotel owner and such owner's ability to pay management fees to
the Patriot Companies. In addition, in certain circumstances, the Patriot
Companies may be required to make loans to or capital investments or advances
in hotel properties in connection with management contracts. A material
deterioration in the operating results of one or more of these hotel
properties and/or a loss of the related management contracts could adversely
affect the value of the Patriot Companies' investment in such hotel
properties. In addition, Wyndham historically has relied on various Crow
Family Members, Bedrock and other hotel owners and investors for various
acquisition, renovation, development and other expansion opportunities.
Although Wyndham believes that it enjoys satisfactory relationships with a
number of hotel owners and investors, there can be no assurance that such
relationships will remain satisfactory or that such owners and investors will
continue to provide additional opportunities following the Merger.
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SUBSTANTIAL EXPENSES AND PAYMENTS IF MERGER FAILS TO OCCUR
No assurance can be given that the Merger and the Related Transactions will
be consummated. If the Merger and the Related Transactions are not
consummated, Patriot REIT, Patriot Operating Company and Wyndham will have
incurred substantial expenses in connection with the transactions. If the
Merger Agreement is terminated under certain circumstances and/or Wyndham
enters into an acquisition agreement with a third party under certain
circumstances or fails to recommend or withdraws its recommendation of the
Merger Agreement, Wyndham is required to pay Patriot REIT $30,000,000. The
requirement to make such $30,000,000 payment could have the effect of
deterring other potential acquirors from making competing offers for Wyndham,
including certain offers that may be more favorable to the stockholders of
Wyndham. Additionally, in the event the Merger and the Related Transactions
are not consummated and no other acquiror has agreed to make such $30,000,000
payment, the payment of such amount could have a material adverse effect on
the results of operations and financial condition of Wyndham. If the Merger
Agreement is terminated in certain other circumstances, Patriot REIT is
required to reimburse Wyndham for its expenses up to an aggregate $7,000,000,
including in the event that the Patriot REIT or Patriot Operating Company
stockholders fail to approve any of the Proposals, and Wyndham terminates the
Merger Agreement because of such failure. In the event that the Merger and the
Related Transactions are not consummated and as a result the Omnibus Purchase
and Sale Agreement is terminated, under certain circumstances Patriot REIT
also is required to pay the Crow Family Entities up to $11,000,000. See "The
Merger Agreement--Termination" and "The Omnibus Purchase and Sale Agreement--
Termination."
RISKS OF OPERATING HOTELS UNDER FRANCHISE OR BRAND AFFILIATIONS
As of November 3, 1997, 76 of Patriot REIT's hotels were operated under
franchise or brand affiliations. In addition, hotels in which Patriot REIT
subsequently invests may be operated pursuant to franchise or brand
affiliations. The continuation of the franchise licenses relating to the
franchised hotels (the "Franchise Licenses") is subject to specified operating
standards and other terms and conditions. The continued use of a brand is
generally contingent upon the continuation of the management agreement related
to that hotel with the branded Operator. Franchisors typically inspect
licensed properties periodically to confirm adherence to operating standards.
Action on the part of any of the Patriot Companies, the Lessees or the
Operators could result in a breach of such standards or other terms and
conditions of the Franchise Licenses and could result in the loss or
cancellation of a Franchise License. It is possible that a franchisor could
condition the continuation of a Franchise License on the completion of capital
improvements which the Patriot REIT Board determines are too expensive or
otherwise unwarranted in light of general economic conditions or the operating
results or prospects of the affected hotel. In that event, the Patriot REIT
Board may elect to allow the Franchise License to lapse which could under
certain circumstance result in Patriot REIT incurring significant costs for
terminating such Franchise License. In any case, if a franchise or brand
affiliation is terminated, Patriot REIT and the Lessee may seek to obtain a
suitable replacement franchise or brand affiliation, or to operate the hotel
independent of a franchise or brand affiliation. The loss of a franchise or
brand affiliation could have a material adverse effect upon the operations or
the underlying value of the hotel covered by the franchise or brand
affiliation because of the loss of associated name recognition, marketing
support and centralized reservation systems provided by the franchisor or
brand owner.
LACK OF CONTROL OVER OPERATIONS OF CERTAIN HOTELS LEASED OR MANAGED BY THIRD
PARTIES
Patriot REIT relies on the ability of the Lessees and the Operators to
manage the operations of hotels that are leased or operated by them. Under the
terms of the Participating Leases, Patriot REIT has the authority to review
annual budgets for the hotels which are leased to the Lessees and to approve
certain items. However, Patriot REIT is unable to directly implement strategic
business decisions with respect to the setting of room rates, repositioning of
a franchise, redevelopment of food and beverage operations and certain similar
decisions with respect to such hotels.
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STOCK PRICE FLUCTUATIONS
The relative stock prices of shares of the Paired Shares and the shares of
Wyndham Common Stock at the Effective Time may vary significantly from the
prices as of the date of execution of the Merger Agreement, the date hereof or
the date on which stockholders vote on the Proposals, due to changes in the
business, operations and prospects of Patriot REIT, Patriot Operating Company
and Wyndham, market assessments of the likelihood that the Merger, the CHCI
Merger or the WHG Merger will be consummated and the timing thereof, general
market and economic conditions and other factors such as market perception of
paired share stocks, REIT stocks, hotel stocks and REIT hotel stocks
generally. There can be no assurance that the price of shares of the Paired
Shares and/or the shares of Wyndham Common Stock will not decline between the
date of this Joint Proxy Statement/Prospectus and the Effective Time.
HORSE RACING INDUSTRY RISKS
Patriot Operating Company's pari-mutuel wagering operations are contingent
upon the continued governmental acceptance of such operations as forms of
legalized gambling. As a form of gambling, pari-mutuel wagering is subject to
extensive licensing and regulatory control by the California Horse Racing
Board (the "CHRB") and other California authorities. These regulatory
authorities have broad powers with respect to the licensing of gaming
operations, and may revoke, suspend, condition or limit the gaming operations
of Patriot Operating Company. The CHRB also has the discretion to limit the
number of days and dates on which Patriot Operating Company may conduct live
horse racing. No assurance can be given as to how many, or which, horse racing
days the CHRB will allocate to Patriot Operating Company in the future, nor
can there be any assurance that an issued license will not be modified or
revoked. Any change in the CHRB regulations or how many, or which, horse
racing days are allocated to Patriot Operating Company could have a material
adverse effect on Patriot Operating Company's financial condition and results
of operations.
Patriot Operating Company manages the Racecourse's horse racing operations,
an area in which Old Patriot REIT had no experience prior to the Cal Jockey
Merger. Although Patriot Operating Company has retained certain members of Bay
Meadows' former management and personnel to continue to manage these horse
racing operations, there can be no assurance that Patriot Operating Company
will be able to continue to employ said management and personnel. Failure to
retain such management and personnel could have a material adverse effect on
the results of operations and financial condition of Patriot Operating
Company.
CONFLICTS IN CERTAIN HOTEL MARKETS
Patriot REIT and Wyndham currently own or operate hotels that are in the
same local market. In a number of cases, such hotels are in direct competition
for guests, with the result that the ability of Patriot REIT and Wyndham
International to maximize results of operations in certain markets may be
limited. Further, consummation of the Merger may result in Patriot REIT or
Wyndham being in breach of noncompetition covenants contained in certain
agreements relating to such hotels, unless consents are obtained from the
other parties to such agreements. No assurances can be given that all of such
consents can be obtained or, if they are not obtained, that the consequences
of such failure would not be material.
RISKS ASSOCIATED WITH THE PATRIOT COMPANIES' HIGHER PROPORTION OF OWNED
PROPERTIES
Of the total hotel portfolios of Patriot REIT and Wyndham, the percentage of
hotel properties that are owned by Patriot REIT is much greater than that
owned by Wyndham. In acquiring its portfolio of hotel properties, Patriot REIT
has invested substantially more capital than Wyndham, whose portfolio is
comprised of a higher percentage of lower capital-intensive management and
lease properties. Following the Merger, Wyndham stockholders will be subject
to the risks associated with substantial capital investment in a hotel
portfolio, including interest rate fluctuations, changes in hotel property
taxes, liabilities specifically related to property ownership (including
environmental liabilities), losses in property value and investment
illiquidity. In addition, in the event of poor hotel operating performance,
the negative impact upon a hotel portfolio with a high percentage of owned
properties tends to be greater than the negative impact upon a hotel portfolio
with a high percentage of managed and leased hotels.
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COMPARISON OF STOCKHOLDER RIGHTS
The rights of Patriot REIT stockholders currently are governed by the DGCL,
the Patriot REIT Charter and the Patriot REIT Bylaws, the rights of the
stockholders of Patriot Operating Company currently are governed by the DGCL,
the Patriot Operating Company Charter and the Patriot Operating Company
Bylaws, and the rights of the stockholders of Wyndham currently are governed
by the DGCL, the Wyndham Charter and the Wyndham Bylaws. In connection with
the Merger, upon stockholder approval of the Proposals, the Patriot REIT
Charter and the Patriot Operating Company Charter and the Patriot REIT Bylaws
and the Patriot Operating Company Bylaws will be amended and restated and will
become the Restated Charters and the Restated Bylaws of Patriot REIT and
Wyndham International. At the Effective Time, stockholders of Wyndham will
become stockholders of Patriot REIT and Wyndham International, each a Delaware
corporation, and their rights as stockholders of Patriot REIT and Wyndham
International will thereafter be governed by the DGCL and the provisions of
the Restated Charters and the Restated Bylaws. In considering the
recommendations of the Patriot REIT Board, the Patriot Operating Company Board
and the Wyndham Board to approve the Proposals, stockholders of Patriot REIT,
Patriot Operating Company and Wyndham should be aware that following the
Merger the rights of stockholders of Patriot REIT and Wyndham International
under the provisions of the Restated Charters and the Restated Bylaws will
differ in certain respects from the existing rights of the Patriot REIT
stockholders under the Patriot REIT Charter and the Patriot REIT Bylaws, the
existing rights of the Patriot Operating Company stockholders under the
Patriot Operating Company Charter and the Patriot Operating Company Bylaws,
and the existing rights of the Wyndham stockholders under the Wyndham Charter
and the Wyndham Bylaws. Stockholders of Patriot REIT, Patriot Operating
Company and Wyndham should carefully read the Restated Charters, which are
attached to this Joint Proxy Statement/Prospectus as Annexes F and G,
respectively.
Certain existing provisions of the Patriot REIT Charter, the Patriot REIT
Bylaws, the Patriot Operating Company Charter and the Patriot Operating
Company Bylaws that will continue in the Restated Charters and the Restated
Bylaws could have a potential anti-takeover effect on Patriot REIT and Wyndham
International following the Merger. The ownership limit provisions, the
staggered board provision, the fact that directors are removable only for
cause, the fact that the stockholders may not call a special meeting of
stockholders, the vote required for a business combination with a related
person, the limitation of the power to fill vacancies to the remaining
directors, the vote required for the stockholders to amend the bylaws, the
fact that stockholders may act without a meeting of stockholders only by
unanimous written consent and the presence of advance-notice bylaw provisions
with respect to stockholder proposals and director nominations, could have the
effect of making it more difficult for a third party to acquire control of
Patriot REIT or Wyndham International, including certain acquisitions that
stockholders may deem to be in their best interests. In addition, the current
9.8% ownership limit in the Patriot REIT Charter and the Patriot Operating
Company Charter will be decreased to 8.0% (except with respect to Look-Through
Entities) in the Restated Charters, which could also have the effect of making
the acquisition of control more difficult for a third party. See "Description
of Capital Stock" and "Comparison of Stockholder Rights."
Under the terms of the Cooperation Agreement to be entered into by the
Patriot Companies in connection with the Merger, the Patriot Companies will be
obligated to cooperate to the fullest extent possible in the conduct of their
respective operations and to take all necessary action to preserve the paired
share structure and to maximize the economic and tax advantages associated
therewith. One of the primary objectives of the Cooperation Agreement is to
set forth the understanding of the Patriot Companies that Patriot REIT shall
have the sole right and power to authorize, effect and control issuances of
paired equity (including securities convertible into paired equity) of the two
companies. The Cooperation Agreement will provide for a number of corporate
governance mechanisms designed to accomplish this objective and the other
objectives set forth therein. Certain provisions of the Cooperation Agreement,
including each of the corporate governance mechanisms contained therein, and
the provisions contained in the Restated Charters effecting certain terms of
the Cooperation Agreement, could have a potential anti-takeover effect on
Patriot REIT and Wyndham International following the Merger by making it more
difficult for a third party to acquire control of Patriot REIT or Wyndham
International, including certain acquisitions that stockholders may deem to be
in their best interests. See "Description of Capital Stock" and "Comparison of
Stockholders Rights."
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POSSIBLE ADVERSE EFFECTS ON MARKET PRICE OF PAIRED SHARES ARISING FROM SHARES
AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Paired Shares following the Merger. Sales of substantial amounts
of Paired Shares (including Paired Shares issued in connection with
outstanding stock options or the exchange or sale of OP Units of the Patriot
Partnerships) or the perception that such sales could occur, could adversely
affect the prevailing market price for Paired Shares. With the exception of
the Paired Shares issued to affiliates of Wyndham in connection with the
Merger, all of the Paired Shares to be issued to Wyndham stockholders in
connection with the Merger and the Merger Subscription will be freely
transferable. Substantially all of the Paired Shares issued to affiliates of
Wyndham in connection with the Merger and the Stock Purchase (including Paired
Shares issuable upon conversion of shares of Series A Preferred Stock) will be
subject to the Registration Rights Agreement entitling the holders of such
shares to certain "shelf," "demand" and "piggyback" registration rights
(although the ability of CF Securities to transfer Paired Shares may be
restricted under certain limited circumstances under the terms of the
Standstill Agreement). In connection with the Registration Statement relating
to this Joint Proxy Statement/Prospectus, the Patriot Companies have
registered the Paired Shares (including Paired Shares that are issuable upon
conversion of shares of Series A Preferred Stock) for sale pursuant to their
obligations under the Registration Rights Agreement, but registration of such
shares does not necessarily mean that any of the Paired Shares will be offered
or sold by such affiliates. See "The Merger and Subscription--Interests of
Certain Officers, Directors and Stockholders of Wyndham--Registration Rights
Agreement." In addition, the Patriot Companies intend to provide registration
rights to Paul A. Nussbaum, the Chairman and Chief Executive Officer of the
Patriot Companies, and William W. Evans III, who serves in the Office of the
Chairman of Patriot REIT, that will be comparable in all relevant respects to
the registration rights granted to the Wyndham affiliates under the
Registration Rights Agreement. Such registration rights to be provided to
Messrs. Nussbaum and Evans will cover all of the Paired Shares that they own
as of the Closing Date as well as any other shares they subsequently acquire,
including those acquired pursuant to the exercise of outstanding options and
those received upon redemption of OP Units (collectively, "Patriot Management
Registrable Shares"). As of the date hereof, there were an aggregate of
3,994,551 and 560,212 Patriot Management Registrable Shares held by Messrs.
Nussbaum and Evans, respectively. In addition, outstanding options to purchase
Wyndham Common Stock held by officers, directors and employees of Wyndham will
be converted into options to purchase an aggregate of 1,415,323 Paired Shares,
assuming an Exchange Ratio of 1.372 (which is subject to adjustment, as
described under "The Merger Agreement--The Merger and Subscription"). The
Paired Shares underlying these options will be registered under the Securities
Act following the Merger. Also, upon consummation of the Merger, the Patriot
REIT Partnership will have outstanding an aggregate of 13,389,604 OP Units,
including 1,324,804 REIT OP Preferred Units, and the Patriot Operating Company
Partnership will have outstanding an aggregate of 14,798,258 OP Units,
including 2,733,458 Operating Company OP Preferred Units. In general, each of
these OP Units may be redeemed for cash or, at the election of Patriot REIT
and Wyndham International, an equal number of OP Units from each Patriot
Partnership may be exchanged for Paired Shares. See "Description of the
Partnership Agreements."
ADVERSE EFFECT OF INCREASE IN MARKET INTEREST RATES ON PRICE OF PAIRED SHARES
One of the factors that may influence the price of the Paired Shares in
public trading markets will be the annual yield from distributions by Patriot
REIT and Wyndham International on the Paired Shares as compared to yields on
certain financial instruments. An increase in market interest rates will
result in higher yields on certain financial instruments, which could
adversely affect the market price of the Paired Shares.
APPRAISAL RIGHTS
As provided under the DGCL, stockholders of Patriot REIT and Patriot
Operating Company do not have appraisal rights in connection with the Merger
and the Related Transactions.
Wyndham believes that appraisal rights may be available for Wyndham
stockholders if there is at least one Wyndham stockholder whose holdings of
Wyndham Common Stock at the Effective Time are large enough to cause such
stockholder to receive Excess Stock in the Merger by operation of the Excess
Share Provisions of the Restated Charters (see "Certain Provisions of the
Restated Charters and Restated Bylaws--Restrictions on Ownership and
Transfer"). Management of Wyndham is not currently aware of any holder of
Wyndham Common Stock whose holdings would be large enough to cause such holder
to receive Excess Stock as a result of the Merger. If no Excess Stock is
issued to the holders of Wyndham Common Stock in connection with the Merger,
no appraisal rights will be available to Wyndham stockholders. In such event,
all Wyndham stockholders who have delivered a written demand for appraisal
rights in accordance with the requirements of Section 262 of the DGCL will
only be entitled to receive the consideration offered pursuant to the Merger
Agreement and such demands for appraisal rights will be disregarded. See "The
Merger and Subscription--Appraisal Rights."
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THE COMPANIES
THE PATRIOT COMPANIES
As a result of the Cal Jockey Merger, Patriot REIT became one of two hotel
REITs with a paired share ownership structure. This paired share ownership
structure permits Patriot REIT to lease certain of its existing hotels, as
well as newly-acquired hotels, to Patriot Operating Company, thereby retaining
for the Patriot Companies' stockholders the economic benefits of both the
lease payments received by Patriot REIT and the operating profits realized by
Patriot Operating Company, while maintaining the tax benefits of Patriot
REIT's status as a REIT under the Code. The paired share ownership structure
also facilitates the Patriot Companies' acquisition and development of hotel
management and franchise businesses, operations which Patriot REIT would have
difficulty pursuing within a traditional REIT structure. In connection with
the Cal Jockey Merger, Bay Meadows formed the Patriot Operating Company
Partnership into which Bay Meadows contributed its assets in exchange for
partnership units of this partnership, and Cal Jockey contributed certain of
its assets to the Patriot REIT Partnership in exchange for partnership units
of this partnership. Since the Cal Jockey Merger, substantially all of the
operations of Patriot REIT and Patriot Operating Company have been conducted
through the Patriot Partnerships and their subsidiaries. Patriot REIT holds an
approximate 82.6% limited partnership interest and the sole 1% general
partnership interest in the Patriot REIT Partnership and Patriot Operating
Company holds an approximate 81.1% limited partnership interest and the sole
1% general partnership interest in the Patriot Operating Company Partnership.
Patriot REIT conducts substantially all of its business and operations through
the Patriot REIT Partnership, and subsidiaries of the partnerships and other
entities which it directly or indirectly controls, and Patriot Operating
Company conducts substantially all of its business and operations through the
Patriot Operating Company Partnership and subsidiaries of the partnerships and
other entities which it directly or indirectly controls.
Patriot REIT is a self-administered REIT which as of November 3, 1997 owned
interests in 80 hotels, with an aggregate of over 20,100 guest rooms. Patriot
REIT's hotels are diversified by franchise or brand affiliation and serve
primarily major U.S. business centers, including Atlanta, Boston, Chicago,
Cleveland, Dallas, Denver, Houston, Miami, San Francisco and Seattle. In
addition to hotels catering primarily to business travelers, Patriot REIT's
portfolio includes world-class resort hotels, including The Boulders, near
Scottsdale, Arizona; The Lodge at Ventana Canyon in Tucson, Arizona; The Peaks
Resort & Spa in Telluride, Colorado; and Carmel Valley Ranch Resort in Carmel,
California, and prominent hotels in major tourist destinations. The hotels
include 69 full service hotels, 6 resort hotels, 4 limited service hotels and
an executive conference center. Seventy-six of the hotels are operated under
franchise or brand affiliations with nationally recognized hotel companies,
including Marriott(R), Crowne Plaza(R), Radisson(R), Ramada(R), Hilton(R),
Hyatt(R), Four Points by Sheraton(R), Holiday Inn(R), Wyndham SM, Wyndham
Garden(R), WestCoast(R), Doubletree(R), Embassy Suites(R), Hampton Inn(R),
Grand Bay(R), Registry(R), Carefree(R) and Grand Heritage(R). Pursuant to its
alliance with Doubletree Hotels Corporation, Patriot REIT owns eleven of its
hotels through joint venture arrangements under which Patriot REIT holds a 90%
ownership interest with regard to five of such hotels and an 85% ownership
interest with regard to six of such hotels. Pursuant to its alliance with the
Snavely Group, Patriot REIT owns four of its hotels through limited liability
companies under which Patriot REIT holds a 90% ownership interest.
Patriot Operating Company currently leases from Patriot REIT 42 hotels, 24
of which were purchased by Patriot REIT subsequent to the Cal Jockey Merger.
Patriot Operating Company anticipates acquiring the leases for an additional
two of Patriot REIT's existing hotels in the near future. Additionally,
Patriot REIT expects that a significant portion of its future acquisitions,
will be leased to Patriot Operating Company. In 1997, Patriot Operating
Company acquired the management operations of Grand Heritage Hotels and
Carefree Resorts. In addition, Patriot Operating Company provides management
services to the Grand Heritage and Carefree hotels and resorts that it leases
from Patriot REIT.
In addition to leasing and managing hotels, Patriot Operating Company is
also engaged in the business of conducting and offering pari-mutuel wagering
on thoroughbred horse racing at the Racecourse. The Racecourse also acts as an
off-track wagering facility, allowing patrons to wager on horse races at other
tracks even when
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live horse racing is not being conducted at the Racecourse, by accepting
simulcasts of horse races conducted throughout the United States, Canada,
Mexico, Australia and Hong Kong. In addition to live horse racing at the
Racecourse, Patriot Operating Company simulcasts its live horse races to as
many as 31 sites in California and 450 sites in the remainder of the world.
Patriot Operating Company faces significant competition for the sports and
entertainment dollar in the San Francisco bay area because of the numerous
professional and amateur sporting events and other entertainment attractions
located in the Bay Area. Patriot Operating Company's revenues from its
operations of the Racecourse are subject to seasonal variations depending on
the scheduling of its live race meet.
As of November 3, 1997, the Patriot Companies had total outstanding
indebtedness of approximately $826.7 million, of which approximately $555.1
million was outstanding under the Revolving Credit Facility. The Revolving
Credit Facility generally is used for the acquisition of additional
properties, businesses and other assets, for capital expenditures and for
general working capital purposes. The interest rate for the Revolving Credit
Facility ranges from LIBOR plus 1.00% to 2.00% (depending on the Patriot
Companies' leverage ratio or the investment grade rating received from the
rating agencies) or the customary alternate base rate announced from time to
time plus 0.0% to 0.50% (depending on the Patriot Companies' leverage ratio).
Patriot REIT agreed with partnerships affiliated with the members of CHC
Lease Partners to make or acquire mortgage loans aggregating $103 million
relating to four hotels owned by the partnerships: the Sheraton Grand Hotel in
Tampa, the Sheraton Gateway Hotel in Miami (also known as the River House
Hotel), the Grand Bay Hotel in Miami, and the Doubletree Hotel in Glenview,
Illinois. Patriot REIT has loaned approximately $46 million of the total
amount to such partnerships, relating to the Doubletree Hotel in Glenview,
Illinois and the River House Hotel. Additionally, Patriot REIT has purchased
two additional loans on which partnerships affiliated with the members of CHC
Lease Partners are borrowers for an aggregate purchase price of $57 million.
One of the purchased loans, in the principal amount of approximately $30.7
million, matures in December 2000 and bears interest at a rate per annum equal
to 8.0% until November 30, 1997, 8.5% from December 1, 1997 until November 30,
1999, and 9.0% from December 1, 1999 until December 1, 2000. The second
purchased loan, in the principal amount of approximately $24.4 million,
matures on December 31, 1999 and bears interest at a rate per annum equal to
8.0% until December 31, 1997 and 9.5% from January 1, 1998 until December 31,
1999. Each of the purchased loans is secured by first priority liens on the
respective hotels. In connection with such loans, Patriot REIT entered into a
short-term financing arrangement with an affiliate of Paine Webber Real
Estate, whereby such affiliate loaned Patriot REIT $103 million through April
15, 1998 at a rate equal to the greater of 30-day LIBOR plus 1.75% or the
borrowing rate on the Revolving Credit Facility. This financing is secured by
a collateral assignment of the mortgage loans encumbering the four hotels. In
October 1997, Patriot REIT acquired 100% of the ownership interests in the
four partnerships that own the four hotels. See "--Surviving Companies--The
Proposed CHCI Merger."
Patriot REIT has entered into an agreement to purchase the 173-room Holiday
Inn Beachwood located in Cleveland, Ohio for a purchase price of approximately
$14.5 million in cash. The purchase of the Holiday Inn Beachwood is subject to
satisfactory completion of various closing conditions and no assurances can be
given that the acquisition will be consummated.
In addition, in August 1997, Patriot Operating Company purchased a
participating loan from National Resort Ventures, L.P., related to the 1,014-
room Buena Vista Palace Hotel in Orlando, Florida for approximately $23.75
million in cash. The Buena Vista Palace Hotel is owned by a joint venture
between Equitable Life Insurance Company, which owns a 55% interest, and Hotel
Venture Partners, Ltd., which owns a 45% interest. Patriot REIT is currently
negotiating with such owners to acquire the hotel. In November 1997, Patriot
REIT agreed to acquire a 95% equity interest in the Buena Vista Palace Hotel
for $97.15 million and the assumption of an existing first leasehold with a
current balance of $50.7 million. As part of the agreement, Patriot REIT also
was granted an option to acquire the remaining 5% equity interest in the
hotel.
In September and October 1997, Patriot REIT acquired ten hotels (including
an approximate 50% controlling ownership interest in the Omni Inner Harbor
Hotel) from entities affiliated with Gencom and CHCI for an aggregate purchase
price of approximately $237 million. Patriot REIT also has entered into an
agreement
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whereby it may indirectly acquire the remaining ownership interest in the Omni
Inner Harbor Hotel. See "--Surviving Companies--The Gencom and CHCI
Transactions."
The Patriot Companies believe that market conditions remain favorable for
the acquisition of additional hotels and hotel portfolios and it is expected
that they will continue their aggressive acquisition activities. Additionally,
the Patriot Companies intend to explore opportunities to acquire management
contracts, hotel leases, hotel operators, owners of hotel franchises and
independent hotel management companies. As part of their ongoing business, the
Patriot Companies continually engage in discussions with public and private
real estate entities, including, without limitation, current lessees of the
Patriot Companies' hotels, regarding possible portfolio or single asset
acquisitions, as well as the acquisition of hotel leasing and management
operations. No assurances can be given, however, that the Patriot Companies
will locate attractive acquisition opportunities or that they will consummate
such acquisitions.
The Patriot Companies' principal executive offices are located at 3030 LBJ
Freeway, Suite 1500, Dallas, Texas 75234, and the telephone number at this
location is (972) 888-8000.
WYNDHAM
Wyndham was formed in February 1996 and, on May 24, 1996, immediately prior
to the consummation of the initial public offering of Wyndham Common Stock,
Wyndham succeeded to the hotel management and related businesses of Wyndham
Hotel Company, Ltd. and the fee and leasehold interests in a number of Wyndham
brand hotels.
Wyndham is a national hotel company operating hotels primarily under the
Wyndham brand names. Wyndham hotels are located across the United States, in
Ontario, Canada and on a number of Caribbean islands. Wyndham's upscale hotels
compete with national hotel chains such as Marriott(R), Hyatt(R) and
Hilton(R). At November 3, 1997, Wyndham's hotel portfolio consisted of 93
hotels operated by Wyndham and 8 franchised hotels, which in the aggregate
contained 24,083 rooms. Wyndham's portfolio consisted of 84 upscale hotel
properties and 17 midscale hotel properties operating under the ClubHouse
brand (7 of which will be renovated and converted to upscale Wyndham Garden
Hotels in early 1998).
Wyndham offers three distinct full service hotel products under the Wyndham
brand names (Wyndham Hotels, Wyndham Garden Hotels and Wyndham Resorts) that
are tailored to urban, suburban and select resort markets, the primary markets
that serve its core upscale customers. In urban markets, Wyndham operates or
franchises 26 large upscale Wyndham Hotels containing an average of
approximately 400 hotel rooms. Wyndham Hotels are targeted principally at
business groups and other group customers, as well as individual business
travelers. In suburban markets and near airports, Wyndham operates or
franchises 48 mid-size Wyndham Garden Hotels, which were created by Wyndham to
cater to individual business travelers and small business groups. Wyndham
Garden Hotels are mid-size full service upscale hotels containing between
approximately 140 and 240 hotel rooms that offer a package of services and
amenities focused on the needs of the business traveler. Wyndham's portfolio
also includes seven Wyndham Resorts that are full service destination resorts
targeted at upscale leisure and incentive travelers and are located both
domestically and on five Caribbean islands.
Over 95% of Wyndham's upscale hotels are operated under the Wyndham brand
names, which are synonymous with high quality lodging facilities and excellent
service. Wyndham places a great emphasis on maintaining hotel properties in
first-rate condition and providing consistently high quality guest services at
all of its hotels, and has designed numerous programs to ensure that Wyndham
guests receive the highest quality lodging experience possible. Wyndham owns,
manages, leases and franchises hotels under the Wyndham brand name. In
addition, Wyndham is experienced in all aspects of hotel operations, including
purchasing, accounting and asset and risk management, as well as hotel
construction and design.
On July 31, 1997, Wyndham acquired through merger Kansas City-based
ClubHouse Hotels, Inc. ("ClubHouse"), a privately held hospitality company
with a portfolio of 17 hotels operating in the mid-scale
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segment of the lodging industry. Of the hotels comprising ClubHouse's
portfolio, Wyndham acquired through the merger or in related acquisition
transactions ownership of 13 ClubHouse hotels and partial ownership of three
ClubHouse hotels. Wyndham also acquired through the merger ownership of the
"ClubHouse" brand name, as well as the license rights with respect to one
franchised ClubHouse hotel.
As of November 3, 1997, Wyndham had total outstanding indebtedness of
approximately $239 million. Wyndham has a revolving credit facility with
Bankers Trust Company, as agent for a group of financial institutions, which
provides Wyndham with up to $150 million of revolving loan borrowings. The
Wyndham Revolving Credit Facility is used by Wyndham for, among other things,
the acquisition, renovation, management and operation of certain hotel
properties. At November 3, 1997, an aggregate of approximately $82.5 million
was outstanding under the Wyndham Revolving Credit Facility with a weighted
average interest rate of 7.63%. The Wyndham Revolving Credit Facility is a
direct obligation of Wyndham and is fully and unconditionally guaranteed by
each of Wyndham's subsidiaries (except for certain insignificant
subsidiaries).
Wyndham also had outstanding $100 million of Wyndham Senior Subordinated
Notes as of November 3, 1997. The Wyndham Senior Subordinated Notes mature on
May 15, 2006, and bear interest at 10 1/2% per annum. The Wyndham Indenture
contains certain covenants restricting Wyndham's ability to incur indebtedness
and otherwise limiting Wyndham's activities. Wyndham's obligations under the
Wyndham Indenture and the Wyndham Senior Subordinated Notes rank junior in
right of payment to Wyndham's obligations under the Wyndham Revolving Credit
Facility.
In addition to the amounts outstanding under the Wyndham Revolving Credit
Facility and the Wyndham Senior Subordinated Notes, at November 3, 1997,
Wyndham had $9.7 million of outstanding revenue bonds, $20 million in capital
lease obligations, $23.4 million in mortgage indebtedness assumed in
connection with the acquisition of ClubHouse and $3.5 million of indebtedness
assumed in connection with the acquisition of a majority equity interest in a
hotel previously managed by Wyndham.
Wyndham's principal executive office is located at 1950 Stemmons Freeway,
Suite 6001, Dallas, Texas 75207 and the telephone number at this location is
(214) 863-1000.
SURVIVING COMPANIES
General
Pursuant to the Merger Agreement, Wyndham will merge with and into Patriot
REIT and the companies will continue their operations within the paired share
structure. Following the Merger, the 36 hotels currently in operation that are
owned or leased by Wyndham will be leased or subleased by Patriot REIT to
Wyndham International. In addition, the leases for two hotels currently leased
by Patriot REIT to Crow Hotel Lessee, Inc. will be terminated and re-leased to
Wyndham International. Patriot REIT also will lease the ten hotels acquired
from the Crow Family Entities to Wyndham International following consummation
of the Crow Assets Acquisition. Following the Merger, it is contemplated that
all of these hotels will be managed by WMC, along with other hotels currently
managed by WMC. It is anticipated that all other management activities will be
carried on by Wyndham International, including management of other hotels
owned by Patriot REIT and leased to Wyndham International that are not managed
by WMC. Wyndham International also will continue the management operations of
the Grand Heritage and Carefree Resorts divisions, which provide management
services to the Grand Heritage and Carefree Resorts hotels. Upon completion of
the CHCI Merger, Wyndham International also will continue the management
operations of GAH and CHCI. In addition, upon completion of the WHG Merger,
Wyndham International will continue the management operations of WHG.
Operations of Patriot REIT and Wyndham International Following the Merger
Management of the Patriot Companies believes that following the Merger, the
Patriot Companies will be perceived as a nationally branded, fully integrated
hotel company, with enhanced hotel acquisition, ownership,
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management, franchising, construction and development capabilities. Management
of the Patriot Companies believes that, from a hotel acquisitions perspective,
the companies will have the ability to maximize returns on newly acquired
properties by leasing them to Wyndham International. Additionally, Patriot
REIT will have the ability to create value by reflagging existing and
subsequently acquired hotel properties utilizing the Wyndham brand. No
assurances can be given, however, that the Patriot Companies will locate
attractive acquisition opportunities or that they will consummate any such
acquisitions. See "Risk Factors--Hotel Industry Risks--Competition for Hotel
Acquisition Opportunities."
Based upon the respective portfolios of the Patriot Companies and Wyndham at
November 3, 1997, after giving effect to the Merger and the Related
Transactions and the Crow Assets Acquisition, the Patriot Companies will have
an aggregate hotel portfolio, including owned, managed, leased and franchised
hotels, consisting of 190 hotels in operation, with an aggregate of over
45,700 rooms. Such portfolio will consist of 113 owned hotels, 13 hotels
leased from independent third parties, 56 managed hotels and 8 franchised
hotels. The Patriot Companies' aggregate portfolio following the Merger would
represent an increase in the Patriot Companies' rooms portfolio of over 41,500
rooms since the Initial Offering.
Crow Assets Acquisition
In connection with the Merger, the Patriot REIT Partnership has entered into
the Omnibus Purchase and Sale Agreement and eleven individual purchase and
sale agreements with the Crow Family Entities, providing for the Patriot REIT
Partnership's acquisition of 11 full-service Wyndham-branded hotels with 3,072
rooms for an aggregate purchase price of approximately $331.7 million in cash
plus up to $14 million in additional cash consideration if two of the hotels
meet certain cash flow targets. The Crow Assets Acquisition is subject to
various closing conditions, including approval of the Merger by the
stockholders of Patriot REIT, Patriot Operating Company and Wyndham (which
condition may be waived by such parties). The following hotels are subject to
the Crow Assets Acquisition: the Wyndham Bel Age Hotel, the Wyndham Franklin
Plaza Hotel, the Wyndham La Guardia Garden Hotel, the Wyndham Milwaukee Hotel,
the Wyndham Northwest Chicago Hotel, the Wyndham Las Colinas Garden Hotel, the
Wyndham Novi Garden Hotel, the Wyndham Pleasanton Garden Hotel, the Wyndham
Wood Dale Garden Hotel, the Wyndham Riverfront Hotel and the Wyndham Palm
Springs Hotel. With the exception of the Milwaukee Hotel, the Crow Assets
Acquisition is expected to be consummated contemporaneously with the closing
of the Merger. With respect to the Milwaukee Hotel, consents to the sale of
such hotel must be obtained from the mortgage lender and the ground lessor. As
a result, Patriot REIT currently expects that the purchase of the Milwaukee
Hotel will be delayed by up to 24 months.
Under the terms of the Omnibus Purchase and Sale Agreement, the Patriot REIT
Partnership also has certain rights of first refusal with respect to the
Wyndham Bristol Hotel and any of the hotels subject to the Omnibus Purchase
and Sale Agreement (other than the Milwaukee Hotel) that are undeliverable by
the Crow Family Entities at the closing of the Crow Assets Acquisition.
Pursuant to the Merger Agreement, the obligation of Patriot REIT to consummate
the Merger is subject to the condition, waivable by Patriot REIT, that the
closing of the transactions contemplated by the Omnibus Purchase and Sale
Agreement shall have become effective subject only to the Merger becoming
effective at the Effective Time. See "The Omnibus Purchase and Sale
Agreement."
Surviving Companies Indebtedness
Term Loan. Patriot REIT has entered into a commitment letter with Paine
Webber Real Estate and Chase for the $500 million Term Loan. It is anticipated
that the Term Loan will be secured by specific assets and properties of the
Patriot Companies that will be transferred to a special purpose "bankruptcy
remote" entity. In connection with the Merger, Patriot REIT anticipates that
the entire $500 million of availability under the Term Loan will be used to
refinance substantially all of the existing indebtedness of Wyndham and to
finance payments to be made in connection with the Merger and the Related
Transactions and the Crow Assets Acquisition. The Term Loan is expected to
have an interest rate per annum equal to LIBOR plus 1.75%. See "The
Companies--
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Surviving Companies." In addition, it is expected that the Patriot Companies'
existing Revolving Credit Facility will be used to refinance that portion of
existing indebtedness of Wyndham that is not refinanced through the Term Loan.
See "Risk Factors--Substantial Debt Obligations."
Wyndham Senior Subordinated Notes. In connection with the Merger, Wyndham is
commencing a tender offer for all of the outstanding Wyndham Senior
Subordinated Notes and also is soliciting consents of a majority of the
holders of the Wyndham Senior Subordinated Notes to eliminate or modify
certain covenants and other provisions of the Wyndham Indenture so that any
non-tendered Wyndham Notes do not restrict the future financial and operating
flexibility of Patriot REIT following the Merger. The tender offer is being
made on a "fixed spread basis" with actual pricing to be determined two
business days prior to the expiration of the offer. The purchase price for the
Wyndham Senior Subordinated Notes will be determined by reference to the
applicable fixed spread over the yield to maturity of the applicable reference
U.S. Treasury security. The tender offer is conditioned on, among other
things, the consummation of the Merger and the receipt of a number of consents
sufficient to amend the Wyndham Indenture. Wyndham expects to fund the tender
offer with cash from operations and cash provided by the Term Loan. The
consents would become effective upon consummation of the tender offer. In
addition, Patriot REIT's obligation to consummate the Merger is conditioned
upon the tender offer being consummated on terms reasonably satisfactory to
Patriot REIT.
Executive Officers and Directors
In connection with the consummation of the Merger, the Patriot REIT Board
and the Patriot Operating Company Board will be reconstituted so that each
Board will be comprised of directors who were formerly directors of Patriot
REIT, Patriot Operating Company or Wyndham, together with certain other
individuals who have not previously served on any of such Boards. Immediately
following the Effective Time, the number of directors of Patriot REIT will be
fixed at ten. At such time, the directors of Patriot REIT will be Paul A.
Nussbaum, William W. Evans III, John C. Deterding, John H. Daniels, Gregory R.
Dillon, Thomas S. Foley, Arch K. Jacobson (all of whom currently are members
of the Patriot REIT Board), James D. Carreker (who currently is the President
of Wyndham and a member of the Wyndham Board), Philip J. Ward (who currently
serves as a director of Wyndham) and Harlan R. Crow (a designee of CF
Securities who currently serves as a director of Wyndham). Immediately
following the Effective Time, the number of directors of Wyndham International
will be fixed at ten. At such time, the directors of Wyndham International
will be Paul A. Nussbaum, Karim Alibhai, Arch K. Jacobson, Sherwood M. Weiser,
Russ Lyon, Jr., Burton C. Einspruch, Leonard Boxer (all of whom currently are
members of the Patriot Operating Company Board), James D. Carreker, James C.
Leslie (who currently serves as a director of Wyndham) and Susan T. Groenteman
(a designee of CF Securities who currently serves as a director of Wyndham).
An additional Patriot REIT designee and an additional Wyndham designee may be
added to the Patriot REIT Board and the Wyndham International Board,
respectively, within six months following the Effective Time.
The executive officers of Patriot REIT and Wyndham International will be the
current executive officers of Patriot REIT and Patriot Operating Company,
respectively, except that William W. Evans III, who currently serves in the
Office of the Chairman of Patriot REIT, will become the President and Chief
Operating Officer of Patriot REIT, Anne L. Raymond, the current Executive Vice
President and Chief Financial Officer of Wyndham, will become the Chief
Financial Officer and an Executive Vice President of Patriot REIT, and James
D. Carreker, the current President and Chief Executive Officer of Wyndham,
will become the Chief Executive Officer and Chairman of the Board of Wyndham
International.
RECENT DEVELOPMENTS
The Gencom and CHCI Transactions
In September and October 1997, Patriot REIT acquired ten hotels (including
an approximate 50% controlling ownership interest in one of the hotels) from
entities affiliated with Gencom and CHCI for an aggregate purchase price of
approximately $237 million. Financing for the purchase of the hotels consisted
of
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cash from the Revolving Credit Facility and the issuance of Paired Shares and
paired OP Units in a private placement. Four of the hotels are encumbered by
mortgage loans in the aggregate amount of approximately $103 million that
Patriot REIT made to partnerships affiliated with the members of CHC Lease
Partners. See "--The Patriot Companies."
In connection with the foregoing transactions, Patriot REIT acquired the
leasehold interests relating to eight of 25 hotels which were previously
leased by CHC Lease Partners for a purchase price of approximately $53
million, and Patriot Operating Company purchased an approximate 50% managing
and controlling ownership interest in GAH from affiliates of Gencom for a
purchase price of approximately $14 million, and such hotels were re-leased to
Patriot Operating Company. Prior to the acquisition of the leasehold
interests, the management contracts with GAH relating to the eight hotels were
terminated. These transactions were financed with cash, the issuance of paired
OP Units in the Patriot Partnerships and the issuance of preferred OP Units in
the Patriot Operating Company Partnership.
In addition, on September 30, 1997, Patriot REIT, Patriot Operating Company
and CHCI entered into the CHCI Merger Agreement providing for the merger of
the hospitality-related businesses of CHCI with and into Patriot Operating
Company with Patriot Operating Company being the surviving company. Subject to
regulatory approvals, CHCI's gaming operations will be transferred to a new
legal entity prior to the CHCI Merger and such operations will not be a part
of the transaction. It is anticipated that the CHCI Merger will be consummated
in the first or second quarter of 1998, although the precise timing is subject
to certain conditions including receipt of all necessary regulatory approvals.
As a result of the CHCI Merger, Patriot Operating Company, through its
subsidiaries, will acquire the remaining 50% investment interest in GAH, the
remaining 17 leases and 16 of the associated management contracts related to
the Patriot REIT hotels leased by CHC Lease Partners, three management
contracts related to Patriot REIT hotels leased by Patriot Operating Company,
12 third-party management contracts, two third-party lease contracts, the
Grand Bay and Registry Hotels & Resorts proprietary brand names and certain
other hospitality management assets.
Pursuant to the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of Operating Company Series A Preferred Stock and Operating Company Series B
Preferred Stock. See "Description of Capital Stock--Patriot Operating Company
Series A Preferred Stock and Series B Preferred Stock." The formula for
determining the exchange ratio of CHCI Shares for Operating Company Series A
Preferred Stock and Operating Company Series B Preferred Stock is based on
issuing an aggregate of approximately 4,396,000 shares of Operating Company
Preferred Stock (based on an aggregate purchase value of approximately $102.2
million and a market price per Paired Share of $23.25), subject to reduction
if certain specified events occur and subject to increase representing
adjustments for dividends paid on Paired Shares after September 30, 1997.
Generally, the aggregate number of shares of Operating Company Preferred Stock
that each stockholder shall have the right to receive pursuant to the CHCI
Merger shall consist of, to the extent possible, an equal number of shares of
Operating Company Series A Preferred Stock and Operating Company Series B
Preferred Stock. The Unaudited Pro Forma Financial Statements set forth in
this Joint Proxy Statement/Prospectus show the effects of the transactions
consummated in September and October 1997 with Gencom and CHCI, as well as the
CHCI Merger, on the Patriot Companies. See "Unaudited Pro Forma Combined
Financial Statements." There can be no assurance that the CHCI Merger will be
consummated.
As part of the Gencom and CHCI transactions, Karim Alibhai, the chief
executive officer of Gencom, was appointed to the position of president, chief
operating officer and director of Patriot Operating Company. Patriot Operating
Company has entered into an employment agreement with Mr. Alibhai, pursuant to
which Mr. Alibhai serves as president and chief operating officer of Patriot
Operating Company for a term of three years at an initial annual base
compensation of $350,000, subject to any increases in base compensation
approved by the Compensation Committee of the Patriot Operating Company Board.
In addition, under the terms of the employment contract, Mr. Alibhai is
eligible to receive cash incentive compensation in an amount to be determined
by the Compensation Committee, but not less than $75,000 per year, up to 80%
of his annual base
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compensation, as adjusted. In addition, Mr. Alibhai was granted nonqualified
options to purchase 280,000 Paired Shares at an exercise price of $32.0625 per
Paired Share (the closing market price of a Paired Share on the date of
grant). The options to purchase Paired Shares vest in equal quarterly
installments over a period of three years.
The WHG Transaction
In addition, Patriot REIT, Patriot Operating Company and WHG have entered
into the WHG Merger Agreement providing for the merger of a newly formed
subsidiary of Patriot Operating Company with and into WHG with WHG being the
surviving corporation. As a result of the WHG Merger, Patriot Operating
Company will acquire the 570-room Condado Plaza Hotel & Casino, a 50% interest
in the 389-room El San Juan Hotel & Casino and a 23.3% interest in the 751-
room El Conquistador, all of which are located in Puerto Rico, as well as a
62% interest in Williams Hospitality Group, Inc., the management company for
the three hotels and the Las Casitas Village at the El Conquistador.
Under the terms of the WHG Merger Agreement, each share of WHG Common Stock
generally will be converted into the right to receive 0.784 Paired Shares (the
"WHG Exchange Ratio"); provided, however, that in the event that (i) the
average closing price of a Paired Share over the ten trading days immediately
preceding the third business day prior to the WHG Special Meeting Date (the
"Patriot/WHG Average Closing Price") is greater than $31.25 and the effective
time of the WHG Merger is before February 1998, the WHG Exchange Ratio will be
adjusted such that the product (the "WHG Exchange Ratio Product") of the WHG
Exchange Ratio and the Patriot/WHG Average Closing Price equals $24.50, (ii)
the Patriot/WHG Average Closing Price is greater than $31.75 and the effective
time of the WHG Merger is in February 1998, the WHG Exchange Ratio will be
adjusted such that the WHG Exchange Ratio Product equals $24.89, (iii) the
Patriot/WHG Average Closing Price is greater than $32.25 and the effective
time of the WHG Merger is after February 1998, the WHG Exchange Ratio will be
adjusted such that the WHG Exchange Ratio Product equals $25.28, (iv) the
Patriot/WHG Average Closing Price is less than or equal to $25.50, but greater
than or equal to $19.50, the WHG Exchange Ratio will be adjusted such that the
WHG Exchange Ratio Product equals $20.00, or (v) the Patriot/WHG Average
Closing Price is less than $19.50, the WHG Exchange Ratio will equal 1.026,
provided, however, that in such circumstances WHG has the right, waivable by
it, to terminate the WHG Merger Agreement. In addition, each issued and
outstanding share of WHG Series B Convertible Preferred Stock will be
converted into the right to receive that number of Paired Shares that the
holder of such share of WHG Series B Convertible Preferred Stock would have
the right to receive assuming conversion of such share, together with any
accrued and unpaid dividends thereon, into shares of WHG Common Stock
immediately prior to the effective time of the WHG Merger. The Unaudited Pro
Forma Financial Statements set forth in this Joint Proxy Statement/Prospectus
show the effects of the WHG Merger on the Patriot Companies. See "Unaudited
Pro Forma Combined Financial Statements." There can be no assurance that the
WHG Merger will be consummated.
The PaineWebber Direct Placement
Pursuant to the PaineWebber Direct Placement, the Patriot Companies agreed
to sell 1,000,033 Paired Shares to PaineWebber. The Direct Placement Purchase
Price per Paired Share will be determined as follows: (a) if the Direct
Placement Closing Price is greater than $25.875, then the Direct Placement
Purchase Price will be $25.875 plus 50% of the difference between the Direct
Placement Closing Price and $25.875; and (b) if the Direct Placement Closing
Price is less than or equal to $25.875, then the Direct Placement Purchase
Price will be $25.875 less 50% of the difference between $25.875 and the
Direct Placement Closing Price. The Patriot Companies currently are
negotiating a definitive underwriting agreement with PaineWebber and
anticipate that the PaineWebber Direct Placement will be consummated on
November 13, 1997.
The LaSalle Direct Placement
Pursuant to the LaSalle Direct Placement, the Patriot Companies also agreed
to sell 1,000,000 Paired Shares to LaSalle as agent for certain clients of
LaSalle at a purchase price per Paired Share of $27.625, or aggregate
consideration of $27,625,000. The Patriot Companies are currently negotiating
a definitive stock purchase
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agreement with LaSalle and anticipate that the LaSalle Direct Placement will
be consummated on November 13, 1997.
The Morgan Stanley Call
On September 30, 1997, the Patriot Companies exercised the Morgan Stanley
Call with respect to 2,000,033 OP Units in each of the Patriot Partnerships.
The exercise price on the Morgan Stanley Call is $25.875 per pair of OP Units.
The Patriot Companies anticipate settling the Morgan Stanley Call on November
13, 1997 with the proceeds of the PaineWebber Direct Placement and the LaSalle
Direct Placement.
Additional Financing
Depending on market conditions and other appropriate factors, the Patriot
Companies may seek additional debt or equity financing prior to the Effective
Time.
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DESCRIPTION OF THE PARTNERSHIP AGREEMENTS
PATRIOT REIT PARTNERSHIP
Patriot REIT owned an approximate 83.6% interest in the Patriot REIT
Partnership as of November 3, 1997. The Patriot REIT Partnership owns,
directly or through subsidiaries, all of Patriot REIT's interests in its
hotels and leases all but 2 of such hotels to the Lessees and Patriot
Operating Company. Patriot REIT holds its interest in the Patriot REIT
Partnership through two wholly owned subsidiaries, PAH GP and PAH LP. PAH GP
is the sole general partner of the Patriot REIT Partnership and owns a 1.0%
general partnership interest in the Patriot REIT Partnership. Through PAH GP,
Patriot REIT controls the Patriot REIT Partnership and its assets. PAH LP is
one of the Patriot REIT Partnership's limited partners (the "Patriot REIT
Limited Partners") and owns an approximate 82.6% limited partnership interest
in the Patriot REIT Partnership. In their capacities as such, the Patriot REIT
Limited Partners have no authority to transact business for, or participate in
the management, activities or decisions of, the Patriot REIT Partnership. The
following is a summary of the material terms of the partnership agreement of
the Patriot REIT Partnership (the "Patriot REIT Partnership Agreement").
Voting Rights
Under the Patriot REIT Partnership Agreement, the Patriot REIT Limited
Partners do not have voting rights relating to the operation and management of
the Patriot REIT Partnership except in connection with certain amendments to
the Patriot REIT Partnership Agreement. Amendments to the Patriot REIT
Partnership Agreement may be made by the Patriot REIT Partnership's general
partner (the "Patriot General Partner").
Transferability of Interests
PAH GP and PAH LP may not voluntarily withdraw from the Patriot REIT
Partnership or transfer or assign their interests in the Patriot REIT
Partnership unless the transaction in which such withdrawal or transfer occurs
results in receipt of Redemption Rights (as hereinafter defined) by the
Patriot REIT Limited Partners (other than PAH LP) immediately prior to such
transaction, or unless the successors to PAH GP and PAH LP contribute
substantially all of their assets to the Patriot REIT Partnership in return
for an interest in the Patriot REIT Partnership. Except in limited
circumstances (including a merger involving Patriot REIT), a person may not be
admitted as a substitute or successor general partner unless a majority-in-
interest of the Patriot REIT Limited Partners (other than PAH LP) consent in
writing to the admission of such substitute or successor general partner,
which consent may be withheld at the sole discretion of such Patriot REIT
Limited Partners.
The Patriot REIT Partnership Agreement prohibits the transfer of OP Units
other than in certain specified transactions in order to enable the Patriot
REIT Partnership to quality for a safe harbor from treatment as a "publicly
traded partnership." A person to whom an OP Unit has been assigned or
transferred may not be admitted as a Patriot REIT Limited Partner without the
written consent of the Patriot General Partner, which consent may be withheld
at the sole discretion of the Patriot General Partner.
Issuance of Additional Units
The Patriot REIT Partnership is authorized to issue limited partnership
units and other partnership interests to its partners or to other persons for
such consideration and on such terms and conditions as the Patriot General
Partner, at its sole discretion, may deem appropriate.
Redemption Rights
Pursuant to the Patriot REIT Partnership Agreement, the Patriot REIT Limited
Partners, other than PAH LP, have redemption rights which, subject to certain
limitations, enable them to cause the Patriot REIT Partnership to redeem each
Patriot REIT OP Unit for cash equal to the value of one share of Patriot REIT
Common Stock or, at Patriot REIT's election, Patriot REIT may purchase each
Patriot REIT OP Unit offered for redemption for one share of Patriot REIT
Common Stock (the "Redemption Rights").
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The Patriot REIT Partnership Agreement provides that for Patriot REIT
Limited Partners to redeem their OP Units of the Patriot REIT Partnership,
they must also redeem an equivalent number of OP Units of the Patriot
Operating Partnership. Upon the redemption of each OP Unit of the Patriot REIT
Partnership and OP Unit of the Patriot Operating Partnership, the redeeming
Patriot REIT Limited Partner will receive cash equal to the value of a Paired
Share; provided that Patriot REIT and Patriot Operating Company may elect to
purchase each tendered OP Unit of the Patriot REIT Partnership and OP Unit of
the Patriot Operating Partnership in exchange for a Paired Share.
Management Liability and Indemnification
The Patriot REIT Partnership Agreement generally provides that the Patriot
General Partner will incur no liability to the Patriot REIT Partnership or any
Patriot REIT Limited Partner for losses sustained or liabilities incurred as a
result of errors in judgment or of any act or omission if the Patriot General
Partner acted in good faith. In addition, the Patriot General Partner is not
responsible for any misconduct or negligence on the part of its agents
provided the Patriot General Partner appointed such agents in good faith. The
Patriot REIT Partnership Agreement also provides for indemnification of the
Patriot General Partner, PAH LP, Patriot REIT, their respective directors and
officers, and such other persons as the Patriot General Partner may from time
to time designate, against any and all losses, claims, damages, liabilities,
joint or several expenses (including reasonable legal fees and expenses),
judgments, fines, settlements and other amounts arising from any and all
claims, demands, actions, suits or proceedings, civil, criminal,
administrative or investigative, that relate to the operations of the Patriot
REIT Partnership in which such person may be involved.
Amendment
The Patriot General Partner may amend the Patriot REIT Partnership Agreement
without the consent of the Patriot Limited Partners, except to the extent that
certain amendments that would, among other things, adversely affect the rights
of any Patriot REIT Limited Partner to receive distributions, alter the
allocation of profits or losses to the Patriot REIT Limited Partners, affect
the Redemption Rights (except as permitted in connection with a merger or
similar transaction or to prevent the Patriot REIT Partnership from being
treated as a publicly traded partnership) in a manner adverse to the Patriot
REIT Limited Partners, impose on the Patriot REIT Limited Partners any
obligation to make additional capital contributions, or require the consent of
Patriot REIT Limited Partners (other than PAH LP) holding more than 50% of the
interests of Patriot REIT Limited Partners (other than PAH LP).
Management Fees and Expenses
In addition to the administrative and operating costs and expenses incurred
by the Patriot REIT Partnership, the Patriot REIT Partnership will pay all
administrative costs and expenses of Patriot REIT, PAH GP and PAH LP (the
"Patriot Expenses"), and the Patriot Expenses will be treated as expenses of
the Patriot REIT Partnership. Patriot Expenses generally will include (i) all
expenses relating to the formation and continuity of existence of Patriot
REIT, PAH GP and PAH LP, (ii) all expenses relating to the public offering and
registration of securities by Patriot REIT, (iii) all expenses associated with
the preparation and filing of any periodic reports by Patriot REIT under
federal, state or local laws or regulations, (iv) all expenses associated with
compliance by Patriot REIT, PAH GP and PAH LP with laws, rules and regulations
promulgated by any regulatory body and (v) all other operating or
administrative costs of PAH GP incurred in the ordinary course of its business
on behalf of the Patriot REIT Partnership. Patriot Expenses, however, will not
include any administrative and operating costs and expenses incurred by
Patriot REIT that are attributable to hotel properties or partnership
interests in a subsidiary partnership that are owned by Patriot REIT directly.
Distributions and Allocations
The Patriot REIT Partnership Agreement provides that the Patriot REIT
Partnership will distribute cash from operations (including net sale or
refinancing proceeds, but excluding net proceeds from the sale of the
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Patriot REIT Partnership's property in connection with the liquidation of the
Patriot REIT Partnership) on a quarterly (or, at the election of the Patriot
General Partner, more frequent) basis, in amounts determined by the Patriot
General Partner in its sole discretion, to the partners in accordance with
their respective percentage interests in the Patriot REIT Partnership, subject
to the terms of the REIT OP Preferred Units. Upon liquidation of the Patriot
REIT Partnership, after payment of, or adequate provision for, debts and
obligations of the Patriot REIT Partnership, including any partner loans, any
remaining assets of the Patriot REIT Partnership will be distributed to all
partners with positive capital accounts in accordance with their respective
positive capital account balances. If the Patriot General Partner has a
negative balance in its capital account following a liquidation of the Patriot
REIT Partnership, it will be obligated to contribute cash to the Patriot REIT
Partnership equal to the negative balance in its capital account.
Profit and loss of the Patriot REIT Partnership for each fiscal year of the
Patriot REIT Partnership generally will be allocated among the partners in
accordance with their respective interests in the Patriot REIT Partnership.
Taxable income and loss will be allocated in the same manner, subject to
compliance with the provisions of Code sections 704(b) and 704(c) and Treasury
Regulations promulgated thereunder.
Term
The Patriot REIT Partnership will continue until December 31, 2050, or until
sooner dissolved upon (i) the bankruptcy, dissolution or withdrawal of the
Patriot General Partner (unless the Patriot REIT Limited Partners elect to
continue the Patriot REIT Partnership), (ii) the sale or other disposition of
all or substantially all of the assets of the Patriot REIT Partnership, (iii)
the redemption of all limited partnership interests in the Patriot Partnership
(other than those held by PAH LP), or (iv) the election by the Patriot General
Partner.
Tax Matters
Pursuant to the Patriot REIT Partnership Agreement, the Patriot General
Partner will be the tax matters partner of the Patriot REIT Partnership and,
as such, will have authority to handle tax audits and to make tax elections
under the Code on behalf of the Patriot REIT Partnership.
REIT OP Preferred Units
As of November 3, 1997 the Patriot REIT Partnership had issued 1,324,804
REIT OP Preferred Units. The REIT OP Preferred Units pay distributions equal
to 103% of the current annual dividend paid on the outstanding Patriot REIT
Common Stock, subject to increase or decrease by the dollar amount of any
increase or decrease in the dividend paid on the Patriot REIT Common Stock. In
addition, if, for any taxable year of the Patriot REIT Partnership ending on
or before December 31, 1998, that portion of the REIT OP Preferred Units
holder's distributive share of Patriot REIT Partnership taxable income which
consists of "unrelated business taxable income" as defined in section
512(a)(1) of the Code ("UBTI") exceeds 20% (any such excess, the "Excess
UBTI"), then the REIT OP Preferred Unit holder will be entitled to an
additional distribution (the "UBTI Adjuster") from the Patriot REIT
Partnership with respect to such taxable year equal to the product of (i) the
Excess UBTI multiplied by (ii) the federal tax rate applicable to the Excess
UBTI. Prior to the third anniversary of issuance, the REIT OP Preferred Units
generally will not be convertible into Patriot REIT Common Stock, except under
certain limited circumstances.
Pursuant to the terms of a Preferred Unit Purchase Agreement, dated as of
May 15, 1996 by and between the Patriot REIT Partnership, Patriot REIT and
LaSalle, on or after the third anniversary of issuance, the holders may
exchange one REIT OP Preferred Unit for one Paired Share, subject to
adjustment and to an ownership limitation of 4.9% of all outstanding Patriot
REIT Common Stock. After the tenth anniversary of issuance, Patriot REIT may
exchange the REIT OP Preferred Units for Paired Shares. The foregoing exchange
rights are in lieu of the conversion rights in the Patriot REIT Partnership
Agreement, which are not applicable to the REIT OP Preferred Units, with the
exception of the anti-dilution provisions. By letter agreement dated as of
September 30,
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1997, the holders and Patriot REIT have agreed to waive these exchange rights
and be bound by the redemption provisions of the Patriot REIT Partnership
Agreement upon the satisfaction of certain conditions.
PATRIOT OPERATING COMPANY PARTNERSHIP
General
The partnership agreement of the Patriot Operating Company Partnership, as
amended, will not contain any terms which are materially different from the
terms of the Patriot REIT Partnership Agreement, although preferred
partnership units will not carry a UBTI Adjuster.
Operating Company OP Preferred Units
As of November 3, 1997 the Patriot Operating Company Partnership had issued
2,733,458 Operating Company OP Preferred Units. The Class A Operating Company
OP Preferred Units (of which 931,972 are issued) pay preferred distributions
equal to the aggregate amount of dividends paid per share on the Patriot REIT
Common Stock and the Patriot Operating Company Common Stock, subject to
certain restrictions relating to the payment priority of the preferred
distributions. The Class B Operating Company OP Preferred Units (of which
1,324,804 are issued) pay preferred distributions equal to 103% of the current
annual dividend paid on the outstanding Patriot Operating Company Common
Stock, subject to increase or decrease by the dollar amount of any increase or
decrease in the dividend paid on Patriot Operating Company Common Stock. The
Class C Operating Company OP Preferred Units (of which 476,682 are issued) pay
preferred distributions equal to the aggregate amount of dividends paid per
share on the Patriot REIT Common Stock and the Patriot Operating Company
Common Stock. Pursuant to a redemption rights agreement with Patriot Operating
Company, a holder of an Operating Company OP Preferred Unit may exchange such
unit for, at Patriot Operating Company's election, one Paired Share or the
cash equivalent of one Paired Share.
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THE MEETINGS OF STOCKHOLDERS
PATRIOT SPECIAL MEETINGS
The Patriot Special Meetings will be held at the Wyndham Anatole Hotel
located at 2201 Stemmons Freeway, Dallas, Texas, on December 12, 1997. At the
Patriot REIT Special Meeting, holders of shares of Patriot REIT Common Stock
will consider and vote upon the Merger Proposal, the Pairing Agreement
Amendment Proposal and the Patriot REIT Charter Amendment Proposal. The
affirmative vote of the holders of a majority of the outstanding shares of
Patriot REIT Common Stock entitled to vote thereon is required to approve each
of the Merger Proposal, the Pairing Agreement Amendment Proposal and the
Patriot REIT Charter Amendment Proposal. At the Patriot Operating Company
Special Meeting, holders of shares of Patriot Operating Company Common Stock
will consider and vote upon the Merger Proposal, the Pairing Agreement
Amendment Proposal and the Patriot Operating Company Charter Proposal. The
affirmative vote of the holders of a majority of the outstanding shares of
Patriot Operating Company Common Stock entitled to vote thereon is required to
approve each of the Merger Proposal, the Pairing Agreement Amendment Proposal
and the Patriot Operating Company Charter Proposal. The Patriot REIT Special
Meeting will be held at 9:30 a.m. local time and the Patriot Operating Company
Special Meeting will be held at 10:30 a.m. local time.
Holders of Paired Shares are entitled to one vote per share at each of the
Patriot Special Meetings. At the present time, it is not anticipated that any
other matters will be brought before the Patriot Special Meetings for
consideration and vote by holders of shares of Patriot REIT Common Stock and
Patriot Operating Company Common Stock, including, without limitation, any
motion to adjourn either of such meetings. In the event of any vote to adjourn
either of the Patriot Special Meetings in order to allow Patriot REIT or
Patriot Operating Company to solicit votes in favor of the Patriot REIT
Proposals or the Patriot Operating Company Proposals, proxies voting AGAINST
the Merger Proposal will be voted AGAINST the motion to adjourn the Patriot
Special Meetings.
The Patriot Companies have fixed the close of business on November 12, 1997
as the Patriot Record Date for determining holders entitled to notice of and
to vote at the Patriot Special Meetings. Only holders of shares of Patriot
REIT Common Stock and Patriot Operating Company Common Stock at the close of
business on the Patriot Record Date will be entitled to notice of and to vote
at the Patriot REIT Special Meeting and the Patriot Operating Company Special
Meeting, respectively. As of the Patriot Record Date, there were outstanding
and entitled to vote 68,006,021 and 68,006,021 shares of Patriot REIT Common
Stock and Patriot Operating Company Common Stock, respectively. As of the
Patriot Record Date, directors and executive officers of Patriot REIT and
their affiliates, who own collectively 911,780 shares (representing 1.34% of
the outstanding shares), have indicated that they intend to vote all of such
shares of Patriot REIT Common Stock to approve each of the Patriot REIT
Proposals, and directors and executive officers of Patriot Operating Company
and their affiliates, who own collectively 911,780 shares (representing 1.34%
of the outstanding shares), have indicated that they intend to vote all of
their shares of Patriot Operating Company Common Stock to approve each of the
Patriot Operating Company Proposals.
All shares of Patriot REIT Common Stock and Patriot Operating Company Common
Stock represented by properly executed proxies will, unless such proxies have
been previously revoked, be voted in accordance with the instructions
indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH SHARES OF
PATRIOT REIT COMMON STOCK AND SHARES OF PATRIOT OPERATING COMPANY COMMON STOCK
WILL BE VOTED IN FAVOR OF THE MERGER PROPOSAL, THE PAIRING AGREEMENT AMENDMENT
PROPOSAL AND, AS APPLICABLE, THE PATRIOT REIT CHARTER AMENDMENT PROPOSAL AND
THE PATRIOT OPERATING COMPANY CHARTER AMENDMENT PROPOSAL. A stockholder who
has given a proxy may revoke it at any time prior to its exercise by giving
written notice thereof to the Secretary of Patriot REIT or Patriot Operating
Company, as the case may be, by signing and returning a later-dated proxy or
by voting in person at the Patriot REIT Special Meeting or the Patriot
Operating Company Special Meeting, as the case may be; however, mere
attendance at the Patriot REIT Special Meeting or the Patriot Operating
Company Special Meeting will not in and of itself have the effect of revoking
the proxy.
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Votes cast by proxy or in person at the Patriot Special Meetings will be
tabulated by the inspector(s) of election appointed for the respective
meetings and will determine whether or not a quorum is present. The presence
in person or by properly executed proxy of the holders of a majority of the
issued and outstanding shares of Patriot REIT Common Stock entitled to vote at
the Patriot REIT Special Meeting is necessary to constitute a quorum at the
Patriot REIT Special Meeting, and the presence in person or by properly
executed proxy of the holders of a majority of the issued and outstanding
shares of Patriot Operating Company Common Stock entitled to vote at the
Patriot Operating Company Special Meeting is necessary to constitute a quorum
at the Patriot Operating Company Special Meeting. Abstentions and broker non-
votes will be treated as shares that are present at the Patriot Special
Meetings for purposes of determining whether a quorum exists. To be approved,
each of the Proposals must receive the affirmative vote of the holders of a
majority of the issued and outstanding shares of Patriot REIT Common Stock
entitled to vote thereon, and each of the Proposals must receive the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Patriot Operating Company Common Stock entitled to vote thereon.
Abstentions and broker non-votes will have the effect of votes against the
approval of each of the Proposals.
Although each of the Proposals will be voted on and tabulated separately at
the Patriot REIT Special Meeting and the Patriot Operating Company Special
Meeting, respectively, under the Merger Agreement it is a condition to the
obligation of each of Patriot REIT and Wyndham to consummate the Merger and
the Related Transactions that each of the Proposals be approved. BECAUSE EACH
OF THE PROPOSALS IS A CONDITION TO CLOSING, IF ANY OF THE PROPOSALS ARE NOT
ADOPTED, THE PARTIES WILL NOT BE REQUIRED TO CONSUMMATE THE MERGER OR ANY OF
THE RELATED TRANSACTIONS. IN THE EVENT THAT ANY OF THE PAIRING AGREEMENT
AMENDMENT PROPOSAL, THE PATRIOT REIT CHARTER AMENDMENT PROPOSAL OR THE PATRIOT
OPERATING COMPANY CHARTER AMENDMENT PROPOSAL IS APPROVED BUT THE MERGER
PROPOSAL IS NOT APPROVED, THE PAIRING AGREEMENT AMENDMENT PROPOSAL, THE
PATRIOT REIT CHARTER AMENDMENT PROPOSAL OR THE PATRIOT OPERATING COMPANY
CHARTER AMENDMENT PROPOSAL, AS APPLICABLE, WILL TAKE EFFECT, BUT THE
REFERENCES TO THE CHANGES IN THE OWNERSHIP LIMITS FROM 9.8% TO 8.0% CONTAINED
IN THE RESTATED CHARTERS AND THE PAIRING AGREEMENT AMENDMENT WILL NOT TAKE
EFFECT.
Each of the Patriot Companies will bear its own cost of solicitation of
proxies. Brokerage firms, fiduciaries, nominees and others will be reimbursed
for their out-of-pocket expenses in forwarding proxy materials to beneficial
owners of shares of Patriot REIT Common Stock and Patriot Operating Company
Common Stock held in their names. In addition to the use of the mails, proxies
may be solicited by directors, officers and regular employees of the Patriot
Companies, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications
with, stockholders or their representatives. MacKenzie Partners, Inc. has been
engaged by the Patriot Companies to act as proxy solicitors and to mail
proxies to the holders of Patriot REIT Common Stock and Patriot Operating
Company Common Stock on the Patriot Record Date, and will receive a fee in
connection therewith of approximately $7,500.
THE PATRIOT REIT BOARD HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL, THE
PAIRING AGREEMENT AMENDMENT PROPOSAL AND THE PATRIOT REIT CHARTER AMENDMENT
PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT REIT VOTE FOR
APPROVAL OF SUCH PROPOSALS. THE PATRIOT OPERATING COMPANY BOARD HAS
UNANIMOUSLY APPROVED THE MERGER PROPOSAL, THE PAIRING AGREEMENT AMENDMENT
PROPOSAL AND THE PATRIOT OPERATING COMPANY CHARTER AMENDMENT PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT OPERATING COMPANY VOTE FOR
APPROVAL OF SUCH PROPOSALS. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND OF
THE MERGER" AND "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS OF THE PATRIOT COMPANIES."
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WYNDHAM SPECIAL MEETING
The Wyndham Special Meeting will be held at the Wyndham Anatole Hotel
located at 2201 Stemmons Freeway, Dallas, Texas, on December 12, 1997, at 8:30
a.m., local time. At the Wyndham Special Meeting, holders of Wyndham Common
Stock will consider and vote upon the Merger Proposal. The affirmative vote of
the holders of two-thirds of the outstanding shares of Wyndham Common Stock
entitled to vote thereon is required to approve the Merger Proposal. Holders
of Wyndham Common Stock are entitled to one vote per share. At the present
time, it is not anticipated that any other matters will be brought before the
Wyndham Special Meeting for consideration and vote by holders of shares of
Wyndham Common Stock, including, without limitation, any motion to adjourn
such meeting. In the event of any vote to adjourn the Wyndham Special Meeting
in order to allow Wyndham to solicit votes in favor of the Merger Proposal,
proxies voting AGAINST the Merger Proposal will be voted AGAINST the motion to
adjourn the Wyndham Special Meeting pursuant to its discretionary authority.
Wyndham has fixed the close of business on November 12, 1997 as the Wyndham
Record Date for determining holders entitled to notice of and to vote at the
Wyndham Special Meeting. Only holders of Wyndham Common Stock at the close of
business on the Wyndham Record Date will be entitled to notice of and to vote
at the Wyndham Special Meeting. As of the Wyndham Record Date, there were
outstanding and entitled to vote 21,618,310 shares of Wyndham Common Stock.
Pursuant to the Proxy Agreement, CF Securities and the Wyndham Management
Stockholders have agreed, subject to certain conditions, to vote all 9,447,745
shares and all 2,411,296 shares, respectively, of Wyndham Common Stock
beneficially owned by them, which shares represent 43.7% and 11.2%,
respectively, of the total issued and outstanding shares of Wyndham Common
Stock as of the Wyndham Record Date, in favor of the Merger Proposal. See
"Certain Related Agreements--Proxy Agreement."
All shares of Wyndham Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. IF NO INSTRUCTIONS ARE
INDICATED, SUCH SHARES OF WYNDHAM COMMON STOCK WILL BE VOTED IN FAVOR OF THE
MERGER PROPOSAL. A stockholder who has given a proxy may revoke it at any time
prior to its exercise by giving written notice thereof to the Secretary of
Wyndham, by signing and returning a later-dated proxy or by voting in person
at the Wyndham Special Meeting; however, mere attendance at the Wyndham
Special Meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the Wyndham Special Meeting will be
tabulated by the inspector(s) of election appointed for the meeting and will
determine whether or not a quorum is present. The presence in person or by
properly executed proxy of the holders of a majority of the issued and
outstanding shares of Wyndham Common Stock at the Wyndham Special Meeting is
necessary to constitute a quorum at the Wyndham Special Meeting. Abstentions
and broker non-votes will be treated as shares that are present at the Wyndham
Special Meeting for purposes of determining whether a quorum exists.
Abstentions and broker non-votes will have the effect of votes against the
approval of the Merger Proposal.
Wyndham will bear its own cost of solicitation of proxies. Brokerage firms,
fiduciaries, nominees and others will be reimbursed for their out-of-pocket
expenses in forwarding proxy materials to beneficial owners of shares of
Wyndham Common Stock held in their names. In addition to the use of the mails,
proxies may be solicited by directors, officers and regular employees of
Wyndham, who will not be specifically compensated for such services, by means
of personal calls upon, or telephonic or telegraphic communications with,
stockholders or their representatives. In addition, MacKenzie Partners, Inc.
has been engaged by Wyndham to act as proxy solicitors and will receive a fee
of approximately $7,500 plus expenses.
THE BOARD OF DIRECTORS OF WYNDHAM HAS UNANIMOUSLY APPROVED THE MERGER
PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF WYNDHAM VOTE FOR
APPROVAL OF THE MERGER PROPOSAL. SEE "THE MERGER AND SUBSCRIPTION--BACKGROUND
OF THE MERGER," "--REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS;
RECOMMENDATION OF THE BOARD OF DIRECTORS OF WYNDHAM."
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THE MERGER AND SUBSCRIPTION
TERMS OF THE MERGER AND SUBSCRIPTION
On April 14, 1997, Old Patriot REIT and Wyndham entered into the Merger
Agreement pursuant to which the parties agreed to merge. In addition, Old
Patriot REIT and CF Securities, the principal stockholder of Wyndham, entered
into the Stock Purchase Agreement on April 14, 1997, pursuant to which Patriot
REIT has agreed to purchase from CF Securities and CF Securities has agreed to
sell to Patriot REIT, all 9,447,745 shares of Wyndham Common Stock
beneficially owned by CF Securities. Following consummation of the Cal Jockey
Merger, the parties, together with Patriot Operating Company, entered into the
Ratification Agreements pursuant to which the Patriot Companies ratified the
Merger Agreement and the Related Transactions. Each of the Patriot REIT Board,
the Patriot Operating Company Board and the Wyndham Board has approved the
Merger Agreement, the Ratification Agreements and the Related Transactions.
Pursuant to the Merger Agreement, at the Effective Time, Wyndham will be
merged with and into Patriot REIT, with Patriot REIT being the surviving
company in the Merger. Following the Merger, Patriot REIT will continue to be
referred to as "Patriot American Hospitality, Inc." while Patriot Operating
Company will change its name to "Wyndham International, Inc." Presently,
shares of Patriot REIT Common Stock and shares of Patriot Operating Company
Common Stock are paired and are transferable only as a single unit pursuant to
the Pairing Agreement. The Pairing Agreement, as amended by the Pairing
Agreement Amendment, will continue after the Merger and, accordingly,
immediately following the Merger the Paired Shares will continue to be paired
and transferable only as a single unit. The Paired Shares currently trade, and
following consummation of the Merger will continue to trade, as a single unit
on the NYSE under the symbol "PAH".
In the Merger, each outstanding Paired Share will remain outstanding and,
following the Merger, will automatically, without any action on the part of
the stockholders of Patriot REIT and Patriot Operating Company, represent the
same number of Paired Shares.
In the Merger, subject to certain adjustments and the right of Wyndham
stockholders to elect to receive cash as described below, each issued and
outstanding share of Wyndham Common Stock will be converted into the right to
receive 1.372 Paired Shares (subject to certain REIT qualification
requirements and the Excess Share Provisions). In the event, however, that the
Patriot Average Closing Price is less than $21.86 but greater than $20.87,
each share of Wyndham Common Stock will be converted into the number of Paired
Shares equal to $30.00 divided by the Patriot Average Closing Price, and, in
the event that the Patriot Average Closing Price is less than $20.87, each
share of Wyndham Common Stock will be converted into 1.438 Paired Shares
(subject to adjustment for any stock dividend, subdivision, reclassification,
recapitalization, stock split or combination or similar event effecting the
Paired Shares or Wyndham Common Stock), provided, however, that in the event
that the Patriot Average Closing Price is less than $20.87, Wyndham has the
right, waivable by it, to terminate the Merger Agreement. Pursuant to the
Merger Subscription Agreement, Wyndham has contracted for the Merger
Subscribed Shares to be issued directly to the Wyndham stockholders in the
Merger in an amount equal to the number of shares of Patriot REIT Common Stock
that will be issued to Wyndham stockholders in the Merger. Immediately prior
to the Merger, Wyndham will fund the Merger Subscription and Wyndham will
designate the Wyndham stockholders as the recipients of the Merger Subscribed
Shares, in compliance with the Pairing Agreement. The Merger Subscription will
be funded on the basis of the fair market value of a Paired Share multiplied
by the Subscription Ratio determined by Wyndham and Patriot Operating Company
based on the relative value of the Patriot Operating Company Common Stock. The
result of the Merger and the Merger Subscription will be that Wyndham
stockholders will have the right to receive Paired Shares at the Exchange
Ratio for each share of Wyndham Common Stock held by them at the Effective
Time, subject to certain REIT qualification rules.
In lieu of receiving Paired Shares, Wyndham stockholders have the right to
make a Cash Election and receive Cash Consideration in an amount per share
equal to the Cash Consideration Fair Market Value, provided, however, that the
maximum amount of cash to be paid to Wyndham stockholders in the Merger and CF
Securities in the Stock Purchase pursuant to Cash Elections will be a total of
$100 million. See "--Terms of the Stock
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Purchase." In the event that holders of Wyndham Common Stock and CF Securities
elect to receive more than $100 million in cash, such cash will be allocated
on a pro rata basis among such stockholders and CF Securities based upon the
respective number of shares of Wyndham Common Stock as to which they have
elected to receive cash. Holders of Wyndham Common Stock (other than CF
Securities) who make a Cash Election with respect to some or all of their
shares of such stock and who receive Cash Consideration on a pro rata basis
will receive Paired Shares for their shares of Wyndham Common Stock that are
not converted into Cash Consideration. Under such circumstances, CF Securities
will receive a combination of Paired Shares and Series A Preferred Stock
pursuant to the terms of the Stock Purchase Agreement for its shares of
Wyndham Common Stock which are not converted into Cash Consideration, subject
to certain REIT qualification limitations that could, under certain limited
circumstances, result in the payment of cash in lieu of shares of Series A
Preferred Stock. CF Securities has delivered to Patriot REIT a Cash Election
pursuant to which CF Securities has elected to receive Cash Consideration with
respect to all 9,447,745 shares of Wyndham Common Stock beneficially owned by
CF Securities. Because CF Securities has made a Cash Election with respect to
all of the shares of Wyndham Common Stock beneficially owned by it, the
maximum amount of cash available to be paid to other holders of Wyndham Common
Stock in the Merger is expected to be approximately $56,300,000. If no other
stockholders of Wyndham make a Cash Election, CF Securities will receive the
entire $100 million of cash available for Cash Elections. See "The Merger
Agreement--Cash Election Procedure" and "The Stock Purchase Agreement--
General."
The Excess Share Provisions of the Restated Charters will provide that no
person or entity may own, be deemed to own by virtue of certain attribution
rules of the Code or be deemed to beneficially own pursuant to the applicable
provisions of the Exchange Act, shares of any class or series of Equity Stock
of Patriot REIT or Wyndham International in excess of the ownership limits
provided therein. If any holder of Wyndham Common Stock would receive in the
Merger and the Merger Subscription a number of Paired Shares which would cause
such holder or any other person or entity to own, or be deemed to own, Paired
Shares in excess of the applicable ownership limit, then such holder would
acquire no right or interest in such number of Paired Shares that would cause
such holder or any other person or entity to exceed the applicable ownership
limit, and, in lieu of receiving the Excess Paired Shares, such holder's
Excess Paired Shares would be automatically converted into an equal number of
shares of Excess Stock and transferred to a Trust for the benefit of the
Beneficiary effective as of the Trading Day prior to the Effective Time in
accordance with the Excess Share Provisions. See "Description of Capital
Stock--Excess Stock" and "--Certain Provisions of the Restated Charters and
Restated Bylaws--Restrictions on Ownership and Transfer."
No fractional shares of Patriot REIT Common Stock will be issued in
connection with the Merger, and no fractional shares of the Merger Subscribed
Shares will be issued in connection with the Merger Subscription. In lieu
thereof, a holder of Wyndham Common Stock otherwise entitled to fractional
Paired Shares in the Merger and the Merger Subscription will be paid an amount
in cash (without interest), rounded to the nearest cent, determined by
multiplying the Cash Consideration Fair Market Value by the fractional amount
of the Paired Shares to which such holder would otherwise be entitled in the
Merger and the Merger Subscription.
As a result of the Merger and without any action on the part of the holder
thereof, at the Effective Time, all shares of Wyndham Common Stock will cease
to be outstanding, will be canceled and retired and will cease to exist. Each
holder of a Wyndham Certificate will thereafter cease to have any rights with
respect to such shares of Wyndham Common Stock, except the right to receive,
without interest, Paired Shares and/or Cash Consideration, and cash in lieu of
fractional Paired Shares, if any, upon the surrender of such Wyndham
Certificate. Promptly after the Effective Time, the Exchange Agent will mail a
Letter of Transmittal to each holder of record of a Wyndham Certificate as of
the Effective Time for use in effecting the surrender of Wyndham Certificates.
Upon surrender of a Wyndham Certificate for cancellation to the Exchange
Agent, together with such Letter of Transmittal duly executed and completed in
accordance with the instructions thereto, the holder of such Wyndham
Certificate will be entitled to receive in exchange therefor (i) a certificate
representing the number of whole shares of Patriot REIT Common Stock to which
such holder shall be entitled,
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issued back-to-back with a certificate representing the number of whole shares
of Wyndham International Common Stock to which such holder shall be entitled
and (ii) a check representing the amount of Cash Consideration payable to such
holder on account of such holder's Cash Election, if any, plus an amount of
cash in lieu of fractional Paired Shares, if any, due such holder, plus the
amount of any dividends or distributions, if any, as provided in the Merger
Agreement, after giving effect to any required withholding tax, and the
Wyndham Certificate so surrendered will be canceled. See "The Merger
Agreement--Exchange of Wyndham Stock Certificates."
TERMS OF THE STOCK PURCHASE
As a result of certain provisions of the Code applicable to REITs like
Patriot REIT, the shares of Wyndham Common Stock beneficially owned by CF
Securities cannot be converted solely into Paired Shares pursuant to the terms
of the Merger Agreement. Accordingly, in connection with the execution of the
Merger Agreement, Patriot REIT and CF Securities entered into the Stock
Purchase Agreement, which generally provides for the issuance of a combination
of Paired Shares and shares of Series A Preferred Stock to CF Securities. In
connection with the Merger and the Related Transactions, the Patriot REIT
Board and the Patriot Operating Company Board have deemed it advisable and in
the best interests of the stockholders of Patriot REIT and Patriot Operating
Company that the ownership limit contained in the Restated Charters be waived,
as permitted thereby, to permit CF Securities to receive a combination of
Paired Shares and shares of Series A Preferred Stock that would exceed such
ownership limit. In addition to the waiver of such ownership limit, the
Patriot REIT Board and the Patriot Operating Company Board determined that the
current ownership limit contained in the Patriot REIT Charter and the Patriot
Operating Company Charter should be decreased to the ownership limit contained
in the Restated Charters in order to reduce the risk that the actual or
constructive ownership of Equity Stock by an individual or entity could cause
Patriot REIT to fail to maintain its qualification as a REIT. See "The Merger
Agreement" and "Description of Capital Stock--Certain Provisions of the
Restated Charters and Restated Bylaws."
Pursuant to the Stock Purchase Agreement, Patriot REIT has agreed to
purchase from CF Securities, and CF Securities has agreed to sell to Patriot
REIT, up to 9,447,745 shares of Wyndham Common Stock beneficially owned by CF
Securities, which stock represents approximately 43.7% of the total issued and
outstanding Wyndham Common Stock as of November 3, 1997. Immediately prior to
the closing of the Merger, Patriot REIT and Patriot Operating Company will
cause to be issued to CF Securities a combination of (i) Paired Shares, (ii)
shares of Series A Preferred Stock, and (iii) if applicable, cash, as follows.
Immediately prior to the closing of the Merger, Patriot REIT and Patriot
Operating Company will issue to CF Securities the number of Paired Shares and
cash that CF Securities would have received pursuant to the Merger if CF
Securities were a stockholder of Wyndham at the Effective Time of the Merger
and had made a Cash Election with respect to all 9,447,745 shares of Wyndham
Common Stock beneficially owned by it, provided, however, that the Paired
Shares to be issued to CF Securities will be reduced (after taking into
account the Cash Consideration to be paid to CF Securities) to the extent
necessary to comply with certain REIT qualification requirements under the
Code and the Excess Share Provisions. To the extent that such REIT
qualification requirements and the Excess Share Provisions limit the Paired
Shares otherwise issuable to CF Securities, Patriot REIT will issue to CF
Securities a number of shares of Series A Preferred Stock (subject to certain
REIT qualification requirements under the Code and the Excess Share
Provisions) such that the aggregate number of Paired Shares and shares of
Series A Preferred Stock issued to CF Securities equals the number of Paired
Shares that otherwise would have been issued to CF Securities in the Merger
but for the application of such REIT qualification requirements under the Code
and the Excess Share provisions. However, if the number of shares of Series A
Preferred Stock issuable to CF Securities should also be limited by certain
REIT qualification requirements under the Code and the Excess Share
Provisions, then Patriot REIT will pay to CF Securities cash in lieu of that
number of shares of Series A Preferred Stock that are not issuable as a result
of such REIT qualification requirements and the Excess Share Provisions in an
amount equal to the Cash Consideration Fair Market Value for each such share
(the "Cash in Lieu of Preferred Stock Amount"). In the event that the product
of the number of Paired Shares to be issued to CF Securities at the closing of
the Stock Purchase multiplied by the Cash Consideration Fair Market Value is
less than $50 million, CF Securities may terminate the Stock Purchase
Agreement, and if Patriot REIT reasonably concludes that there
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is a realistic possibility that such cash in lieu of Series A Preferred Stock
would exceed $25 million, Patriot REIT may terminate the Stock Purchase
Agreement. See "The Stock Purchase Agreement--Termination."
Pursuant to the Stock Purchase Subscription Agreement to be entered into
between CF Securities and Patriot Operating Company prior to the closing of
the Stock Purchase, CF Securities will, in connection with the Stock Purchase,
subscribe for the Stock Purchase Subscribed Shares to be issued directly to CF
Securities pursuant to the Stock Purchase in an amount equal to the number of
Paired Shares that will be issued to CF Securities pursuant to the Stock
Purchase. The result of the Stock Purchase and the Stock Purchase Subscription
will be that CF Securities will receive Paired Shares at the Exchange Ratio
for each share of Wyndham Common Stock beneficially owned by it at the closing
of the Stock Purchase, other than those shares of Wyndham Common Stock as to
which CF Securities receives shares of Series A Preferred Stock (or, in the
limited circumstances described above, cash in lieu of Series A Preferred
Stock) at the closing of the Stock Purchase.
As required by the Stock Purchase Agreement, CF Securities has delivered to
Patriot REIT a Cash Election pursuant to which CF Securities has elected to
receive Cash Consideration with respect to all 9,447,745 of the shares of
Wyndham Common Stock beneficially owned by CF Securities (representing all of
the shares of Wyndham Common Stock beneficially owned by CF Securities).
Because CF Securities has made a Cash Election with respect to all of the
shares of Wyndham Common Stock owned by CF Securities, the maximum amount of
cash available to be paid to other holders of Wyndham Common Stock in the
Merger is expected to be approximately $56,300,000 million. If no other
stockholders of Wyndham make a Cash Election, CF Securities will receive the
entire $100 million of cash available for Cash Elections.
The Stock Purchase Closing will occur on the day on which the closing of the
Merger occurs and immediately prior to the closing of the Merger. The Stock
Purchase is subject to (i) certain conditions, waivable by the parties to the
Stock Purchase Agreement, including, without limitation, satisfaction or
waiver by the parties to the Merger Agreement of the Mutual Merger Conditions,
(ii) certain conditions, waivable by Patriot REIT, including, without
limitation, satisfaction or waiver by Patriot REIT of the Patriot REIT Merger
Conditions, and (iii) certain conditions, waivable by CF Securities,
including, without limitation, satisfaction or waiver by Wyndham of the
Wyndham Merger Conditions. See "The Stock Purchase Agreement--Conditions to
the Stock Purchase."
The Stock Purchase Agreement may be terminated and abandoned at any time
prior to the Stock Purchase Closing, in a number of circumstances including,
among others, (i) by Patriot REIT or CF Securities, if the Merger Agreement
shall have been terminated, (ii) by mutual consent of Patriot REIT and CF
Securities, and (iii) by Patriot REIT, at any time (including on the date of
the Stock Purchase Closing) if Patriot REIT shall reasonably conclude that, as
a result of circumstances discovered in connection with the investigation of
whether there exist any circumstances which could cause Patriot REIT to be
"closely held" within the meaning of Section 856(a) of the Code or to derive
or accrue or be allocated any amount that is treated as other than "rents from
real property" by reason of Section 856(d)(2)(B) of the Code, or information
obtained in any other manner, there is a realistic possibility (as defined in
the Treasury Regulations promulgated by the IRS) that the Cash in Lieu of
Preferred Stock Amount would exceed $25 million. See "The Stock Purchase
Agreement--Termination."
BACKGROUND OF THE MERGER
On October 31, 1996, Old Patriot REIT entered into a binding acquisition
agreement (the "October 31, 1996 Agreement") pursuant to which Old Patriot
REIT agreed to acquire Cal Jockey and Bay Meadows and thereby assume the
paired share ownership structure. One of the principal reasons for the Cal
Jockey Merger was that this transaction would allow Patriot REIT and Patriot
Operating Company to become a fully integrated owner and operator of hotels.
Under the paired share structure, Patriot REIT can lease certain existing and
newly acquired hotels to Patriot Operating Company and thus the Patriot
Companies have the ability to control strategic business decisions with
respect to the marketing and management of these hotels. Additionally, the
paired share
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ownership structure facilitates the Patriot Companies' acquisition and/or
development of hotel management and franchise businesses which Patriot REIT
would have difficulty conducting within a traditional REIT structure.
Following the execution of the October 31, 1996 Agreement, Old Patriot REIT
began exploring strategic opportunities to acquire hotel operators and owners
of hotel brands to further develop the Patriot Companies as a fully integrated
owner and operator of hotels and to obtain the marketing power of a
nationally-recognized brand name. In pursuit of such strategic opportunities,
on December 9, 1996, Old Patriot REIT entered into a definitive agreement to
acquire Carefree Resorts Corporation and certain related entities, including
four Carefree resort hotels. In addition, on February 28, 1997, Old Patriot
REIT entered into a definitive agreement to acquire Grand Heritage Hotels, a
hotel management and marketing company specializing in historic landmark
hotels.
In addition to pursuing the acquisition of Carefree and the acquisition of
Grand Heritage Hotels, Old Patriot REIT also explored other opportunities to
acquire hotel operators and owners of brands during the several months
immediately following the execution of the October 31, 1996 Agreement. Among
these other opportunities were a potential business combination transaction
with Wyndham as well as potential business combination transactions with two
other major hotel owners and operators. Old Patriot REIT's discussions with
these two other hotel owners and operators terminated in January 1997.
On December 17, 1996, James D. Carreker, President and Chief Executive
Officer of Wyndham, and Anne L. Raymond, Wyndham's Executive Vice President
and Chief Financial Officer, met in Dallas with Paul A. Nussbaum, Chairman and
Chief Executive Officer of Old Patriot REIT. At that meeting, they discussed a
potential business combination transaction between the companies and the
strategic benefits to both companies that could be achieved by such a
transaction.
At the same time that Old Patriot REIT was exploring opportunities to
acquire hotel operators and owners of hotel brands, Wyndham was involved in
preliminary discussions with another major hotel company ("Company A")
concerning a possible business combination between the parties. Meetings were
held between members of senior management of Wyndham and Company A and a
preliminary due diligence investigation relating to such a combination was
conducted. Wyndham's involvement in these discussions and its discussions with
Old Patriot REIT were based upon the recognition by Wyndham's management of
the need for Wyndham to grow rapidly or become part of a larger company in
order to achieve greater brand awareness and access to capital and to compete
successfully in an industry that has undergone significant consolidation and
realignment in recent years. As a result of this assessment of the industry
environment, Wyndham has been involved from time to time in recent years in
discussions with various parties concerning possible business combinations or
other strategic transactions.
At its regularly scheduled meeting on January 21, 1997, Mr. Carreker briefed
the Wyndham Board of Directors on the consolidation taking place in the hotel
industry and discussed various growth strategies that might be available to
Wyndham. The strategies included a possible business combination with Patriot
REIT, Company A and certain other companies.
On January 22, 1997, Mr. Carreker, Ms. Raymond, Mr. Nussbaum and William W.
Evans III, who was then still employed by Old Patriot REIT's financial
advisor, PaineWebber, met in Dallas to discuss a possible business combination
transaction between Wyndham and the Patriot Companies following completion of
the Cal Jockey Merger. During the course of the meeting, Messrs. Nussbaum and
Evans also discussed Old Patriot REIT's interest in acquiring various Wyndham-
managed hotel properties owned by the Crow Family Entities contemporaneously
with the consummation of a transaction between Wyndham and the Patriot
Companies. The Wyndham representatives later communicated Old Patriot REIT's
expression of interest to representatives of the Crow Family Entities. At the
conclusion of the meeting, the Old Patriot REIT and Wyndham representatives
agreed that discussions concerning a potential transaction should continue.
On January 23, 1997, Wyndham representatives met at an industry conference
in Los Angeles with representatives of another major hotel concern ("Company
B") and its financial advisors regarding a possible
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business combination. Company B representatives also expressed interest in
acquiring certain Wyndham-managed hotel properties owned by the Crow Family
Entities. It was agreed following the meeting that discussions would continue.
On January 23, Wyndham also engaged Smith Barney to act as its financial
advisor in connection with one or more potential transactions.
Mr. Carreker, Ms. Raymond and representatives of Smith Barney met in Dallas
with Old Patriot REIT management representatives and Old Patriot REIT's legal
and financial advisors on January 24, 1997. Following this meeting, Wyndham
requested that Old Patriot REIT submit a written indication of interest in a
transaction involving Wyndham by no later than February 3, 1997. A similar
request was communicated to Company B. No such request was communicated to
Company A because Company A was then in the process of soliciting the receipt
of business combination proposals from other parties, including Wyndham. In
the course of discussions with both Old Patriot REIT and Company B, Wyndham
representatives emphasized that any acquisition of hotel properties from the
Crow Family Entities would have to be separately negotiated with
representatives of the Crow Family Entities.
At its regularly scheduled meeting on January 30, 1997, Mr. Nussbaum
reported to the Old Patriot REIT Board that he and Old Patriot REIT's legal
and financial advisors had met in Dallas with representatives of Wyndham and
its financial advisors and discussed a possible business combination
transaction between Wyndham and the Patriot Companies following the Cal Jockey
Merger. Mr. Nussbaum also reported that the parties had discussions concerning
the possible acquisition of hotel properties from the Crow Family Entities.
The directors also discussed the quality of the hotels that could be acquired
from the Crow Family Entities and the possibility of acquiring such hotels
contemporaneously with a business combination transaction with Wyndham.
In late January 1997, Crow Family Entities representatives engaged
Montgomery Securities to act as the financial advisor to the Crow Family
Entities in connection with a potential transaction involving the sale of
hotel properties owned by such partnerships.
On February 3, 1997, Old Patriot REIT submitted to Wyndham and Crow
Investment Trust a proposal (the "Initial Patriot Proposal") pursuant to which
Old Patriot REIT proposed the merger of Wyndham with and into Patriot
Operating Company following completion of the Cal Jockey Merger. In addition,
Old Patriot REIT proposed the contemporaneous acquisition by the Patriot REIT
Partnership of 11 Wyndham-managed hotel properties owned by the Crow Family
Entities in exchange for limited partnership interests in the Patriot REIT
Partnership and the Patriot Operating Company Partnership. Pursuant to the
Initial Patriot Proposal, Wyndham stockholders would have the option to
receive Paired Shares in a largely taxable transaction or to receive preferred
stock of Patriot Operating Company which would be convertible into Paired
Shares under certain circumstances. Under the terms of the Initial Patriot
Proposal, Patriot Operating Company and Wyndham would merge in a transaction
in which the Wyndham Common Stock would be valued at $32.00 per share (based
on the then-prevailing average trading range of Old Patriot REIT Common
Stock), subject to adjustment based on the market value of the Paired Shares
over a specified period of time and to specified upper and lower limits on the
number of shares to be received for each share of Wyndham Common Stock. The
letter setting forth the Initial Patriot Proposal provided that unless it was
accepted by February 5, 1997, it would be withdrawn. No written indication of
interest was received by Wyndham from Company B by February 3.
On February 5, 1997, the Wyndham Board of Directors held a telephonic
meeting to consider the Initial Patriot Proposal. Mr. Carreker reported that
he had informed Mr. Nussbaum that it would not be possible to respond by the
deadline that had been set forth in the Initial Patriot Proposal and that Mr.
Nussbaum had agreed to waive the deadline and continue discussions with
Wyndham if the Crow Family Entities would enter into discussions concerning a
property-by-property valuation of the hotel properties owned by them. Mr.
Carreker reported to the Wyndham Board that the Crow Family Entity
representatives had indicated a willingness to do so and that he had so
informed Mr. Nussbaum. The directors also discussed appointing a special
committee of independent directors to consider the Initial Patriot Proposal in
view of the interests of certain Wyndham directors in the transactions
proposed by Old Patriot REIT.
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Wyndham representatives again met with representatives of Company A and its
financial advisors on February 8, 1997 to continue discussions concerning a
possible business combination between Wyndham and Company A. The
representatives discussed the strategic focus of the two companies, as well as
how the new hotel development needs of the combined company would be
satisfied. It was noted during the course of the meeting that if Wyndham was
interested in pursuing a potential business combination with Company A, it
should submit a proposal for such a combination during the next week.
On February 10, 1997, Wyndham representatives met with representatives of
another major hotel company ("Company C") concerning a possible business
combination. Discussions focused on the future operations of the combined
company and certain related matters. Following this meeting, Company C advised
Wyndham that it was not interested in continuing the discussions.
Also on February 10, 1997, the Board of Directors of Wyndham held a meeting
and designated Philip J. Ward, James C. Leslie and Daniel A. Decker, all of
whom are non-management directors of Wyndham, as the members of the Wyndham
Special Committee. The Wyndham Special Committee was appointed to consider and
evaluate the Initial Patriot Proposal and any other proposals (including any
other proposal from Old Patriot REIT) that might be received by Wyndham as
alternatives to the Initial Patriot Proposal. The committee was authorized to
retain its own legal and financial advisors, to participate in the negotiation
of the terms and conditions of such proposals and to make a recommendation
thereon to the Wyndham Board of Directors. The Wyndham Special Committee
subsequently elected Mr. Decker to serve as its chairman.
On February 11, 1997, Wyndham submitted to Company A a proposal for a
business combination involving the two companies. Approximately one week
later, Company A advised Wyndham that it had accepted an alternative proposal
from another company.
The Wyndham Special Committee met on February 14, 1997 to discuss the status
of the Initial Patriot Proposal and to be briefed by Mr. Carreker and Ms.
Raymond on the status of discussions with other companies. The Wyndham Special
Committee also discussed the retention of legal and financial advisors. At a
meeting on February 18, 1997, the Wyndham Special Committee decided to retain
its own separate legal counsel. The Wyndham Special Committee met again on
February 19, 1997 to discuss the selection of a separate financial advisor.
On February 21, 1997, Wyndham received a written confirmation of continuing
interest from Company B. Although the confirmation lacked any significant
structuring details, it contained a general proposal for a primarily tax-free
stock merger pursuant to which Company B would merge with Wyndham in a
transaction in which the Wyndham Common Stock would be valued at $30.00 per
share, subject to unspecified upper and lower limits on the number of shares
to be received for each share of Wyndham Common Stock. The proposal also
referred to Company B's desire to acquire certain hotel properties controlled
by the Crow Family Entities.
The Wyndham Board held a meeting on February 25, 1997 in which Wyndham's
management and legal and financial advisors participated. At that meeting,
Smith Barney updated the directors as to the various discussions that had
taken place with several companies concerning Wyndham's strategic
alternatives, and reviewed with the Wyndham Board the Initial Patriot Proposal
and the proposal that had been received from Company B, the paired share REIT
structure and the consolidation trend in the lodging industry. It was noted at
the meeting that Wyndham's management had requested that Company B provide
additional information concerning the structure of the transaction it had
outlined in its February 21 proposal. Immediately following the Wyndham Board
meeting, the Wyndham Special Committee held a meeting at which the members
discussed, among other things, whether to retain a separate financial advisor
to advise the committee and who might be selected to act as such an advisor.
On February 26, 1997, the Wyndham Special Committee met again and decided to
seek to retain Merrill Lynch as its financial advisor.
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On February 27, 1997, Wyndham made a public announcement that it was
evaluating various strategic alternatives and that Smith Barney had been
retained to assist Wyndham and the Wyndham Board.
In late February 1997, meetings were held between management representatives
of Wyndham and Old Patriot REIT and their financial and legal advisors
concerning, among other things, the structure set forth in the Initial Patriot
Proposal and the tax issues associated with that structure. On February 28,
1997, Old Patriot REIT submitted a revised proposal (the "Revised Patriot
Proposal") reflecting the proposed merger of Wyndham into Patriot REIT, rather
than Patriot Operating Company, following the Cal Jockey Merger. Pursuant to
the Revised Patriot Proposal, Wyndham stockholders would receive Paired Shares
in a primarily tax-free transaction.
Shortly thereafter, negotiations commenced between Wyndham and Old Patriot
REIT and their legal and financial advisors concerning the terms of the
Revised Patriot Proposal. During the course of the negotiations, Old Patriot
REIT modified the Revised Patriot Proposal so that any Wyndham stockholder
who, as a result of the transaction, would exceed Patriot REIT's ownership
limit (and who, as a result of various REIT qualification issues, could
jeopardize Old Patriot REIT's tax status as a REIT) would be required to elect
to receive either cash or unpaired shares of Patriot REIT capital stock with
respect to the number of Paired Shares exceeding such limit. Old Patriot REIT
and Wyndham concluded that CF Securities was the only Wyndham stockholder to
which Patriot REIT's ownership restriction and certain REIT qualification
issues would apply to limit the number of Paired Shares otherwise issuable to
CF Securities. Accordingly, Old Patriot REIT proposed that CF Securities
receive the consideration to which it would otherwise be entitled by reason of
the Merger pursuant to a separate Stock Purchase Agreement, and that the
election to receive cash or unpaired Patriot REIT shares instead of Paired
Shares would only need to be offered to CF Securities. CF Securities
ultimately agreed to Old Patriot REIT's proposal regarding a separate Stock
Purchase Agreement and separately negotiated with Old Patriot REIT concerning
the terms of that agreement.
Prior to the commencement of negotiations with Patriot, Mr. Carreker invited
the members of the Wyndham Special Committee and their representatives to be
present at any such negotiations. The Wyndham Special Committee determined
that it could be most effective by monitoring negotiations and advising
Wyndham management representatives of its position, rather than directly
participating in those negotiations, but it reserved the right to become
directly involved in negotiations to the extent that it determined such
involvement would be more effective. From time to time during the negotiation
process, the Wyndham Special Committee considered whether it was necessary for
it to directly engage in the negotiations, but in each case determined that
communicating its position through management would be most effective. During
the negotiation process, the Wyndham Special Committee received regular,
detailed reports on the progress of negotiations, discussed the progress of
those negotiations with its advisors and management, and conveyed to
management its position on various issues.
On March 4, 1997, Mr. Nussbaum, Mr. Carreker and Ms. Raymond met again to
discuss the progress of the negotiations regarding the Revised Patriot
Proposal and also discussed, among other things, the proposed governance of
Patriot REIT and Wyndham following the Merger and the operation of Old Patriot
REIT, Patriot REIT, Patriot Operating Company and Wyndham during the period
between execution of the Merger Agreement and closing of the Merger and after
the Merger.
On March 6, 1997, Company B submitted a revised proposal reflecting
additional detail concerning the transaction proposed by Company B in its
February 21, 1997 communication to Wyndham. Company B's revised proposal
reflected a merger of Company B and Wyndham in a transaction in which the
Wyndham Common Stock would be valued at $29.00 per share. The revised proposal
contemplated a tax-free merger but did not specify how the transaction would
be structured in order to qualify as a tax-free reorganization.
The Wyndham Special Committee met on March 7, 1997, confirmed the terms of
the engagement of Merrill Lynch to act as its financial advisor and discussed
the proposed transactions being considered by Wyndham. The Wyndham Board of
Directors also held a telephonic meeting on March 7, 1997, at which time
Wyndham's management and Wyndham's legal and financial advisors updated the
Wyndham Board with respect to the
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Revised Patriot Proposal, the proposed Crow Assets Acquisition, the revised
proposal from Company B and the status of negotiations with Old Patriot REIT.
At this meeting, the Wyndham Board also was informed that Company B declined
to provide additional information concerning the tax-free structure of the
transaction it had proposed unless Wyndham agreed in advance to the terms of
the letter setting forth the proposal, which included a provision requiring
Wyndham to pay Company B a $15 million termination fee if Wyndham pursued a
superior proposal. In view of the price reflected in Company B's proposal,
Company B's refusal to provide additional information concerning its proposed
transaction and the status of negotiations regarding the Revised Patriot
Proposal, the Wyndham Board decided not to agree to the terms of the letter
from Company B.
The Wyndham Special Committee held additional meetings on March 12 and March
14, 1997 in which its legal and financial advisors participated. The Wyndham
Special Committee discussed the Revised Patriot Proposal, the revised proposal
from Company B and the proposed Crow Assets Acquisition, as well as Merrill
Lynch's preliminary financial analysis of the transactions.
The Old Patriot REIT Board met on March 12, 1997, at which meeting the Old
Patriot REIT Board discussed the terms of the proposed transactions with
Wyndham and the Crow Family Entities and the benefits to Old Patriot REIT that
would result from the transactions. At the meeting, Mr. Nussbaum, together
with representatives of Old Patriot REIT's financial and legal advisors,
advised the Old Patriot REIT Board as to the progress of the negotiations with
Wyndham and the Crow Family Entities and the anticipated timing of the
transactions. In addition, Mr. Nussbaum reported that the parties' discussions
had progressed to the point of a narrow range for the exchange ratio.
PaineWebber also presented its financial analysis of the transactions
contemplated by the proposed Merger and the Crow Assets Acquisition and
delivered an oral opinion to the Old Patriot REIT Board to the effect that, as
of the date of such opinion and based on the transactions then contemplated
and the narrow exchange ratio range that had been discussed, the Merger
Consideration was fair, from a financial point of view, to the holders of Old
Patriot REIT Common Stock.
On March 16, 1997, the parties commenced preparation and negotiation of
definitive documentation for a proposed transaction. Although the parties'
discussions had progressed to the point of a narrow exchange ratio range, they
still had differences on a number of material terms, including the precise
terms of cap and collar provisions, termination rights and termination fees,
the conduct of each party's operations between signing and closing of the
Merger, and various corporate governance issues. However, the parties believed
that negotiations had proceeded to a point where the remaining differences
should be addressed in the context of negotiations over definitive
documentation. At or about the same time, the negotiation and preparation of
definitive documentation for the proposed Crow Assets Acquisition was also
commenced.
On March 17, 1997, the Wyndham Special Committee held a telephonic meeting.
Merrill Lynch updated the Wyndham Special Committee on Merrill Lynch's
preliminary financial analysis of the proposed transaction between Wyndham and
Old Patriot REIT, and the Wyndham Special Committee reviewed the last drafts
of the term sheets for the Revised Patriot Proposal and the Crow Assets
Acquisition. Wyndham management representatives in consultation with legal
counsel reviewed the status of negotiations with Old Patriot REIT and a
proposed timetable for negotiating and completing the proposed transactions.
After the circulation of initial drafts of various of the definitive
documents reflecting the terms of the Revised Patriot Proposal and the
exchange of comments on certain of those drafts, Mr. Carreker, Ms. Raymond and
Wyndham's legal advisors met in Boston, Massachusetts beginning on March 31,
1997 with Mr. Nussbaum, Mr. Evans (who by that time had become an executive
officer of Old Patriot REIT), other Old Patriot REIT management
representatives and Old Patriot REIT's legal and financial advisors to
continue negotiation of the remaining issues and complete the preparation of
the definitive documents.
Also on March 31, 1997, the Wyndham Special Committee held a telephonic
meeting in which its legal and financial advisors and Wyndham management
representatives participated. Following that meeting, the legal advisors to
the Wyndham Special Committee prepared and delivered to the Wyndham management
representatives a list of certain issues that, in the view of the Wyndham
Special Committee, should be considered
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in the negotiations with Old Patriot REIT. The list reflected, among other
matters, the Wyndham Special Committee's position that (i) all Wyndham
stockholders should have the same right to receive cash in connection with the
Merger that CF Securities would have under the Stock Purchase Agreement, (ii)
the Wyndham Special Committee should have the right to approve any amendments
to the definitive documents relating to the Merger, the Stock Purchase and the
Crow Assets Acquisition, (iii) Wyndham, with the Wyndham Special Committee's
participation, should have the right to approve major transactions by Old
Patriot REIT between signing of definitive documentation and the closing, with
certain exceptions (or alternative protection), (iv) the ability of Wyndham to
terminate the Merger Agreement to accept another proposal to the extent
required by the fiduciary duties of its Board of Directors should be broader
than reflected in the then current drafts of the definitive documents, and (v)
efforts should be made to accelerate the proposed timing of the consummation
of the Merger.
The Wyndham Special Committee held additional telephonic meetings on April 1
and 2, 1997 in which its legal and financial advisors participated, along with
certain Wyndham management representatives and Wyndham's legal and financial
advisors. The principal purpose of these meetings was to discuss the status of
Old Patriot REIT's negotiations with Wyndham and the Crow Family Entities and
the status of due diligence on Old Patriot REIT and certain of Old Patriot
REIT's other pending transactions.
On April 3, 1997, the Wyndham Board met in New York for a presentation by
Wyndham management representatives and Wyndham's legal and financial advisors
regarding the status of the negotiations with Old Patriot REIT. The Wyndham
Board discussed Old Patriot REIT's ability to engage in transactions between
the signing of definitive documentation and the closing of the Merger, and the
extent to which Wyndham should have consent rights in connection with such
transactions. The Wyndham Board also discussed the proposed exchange ratio for
the Merger, whether Wyndham should have a termination right if the market
price of the Paired Shares remained below a certain threshold for a specific
period of time, whether the Merger should be conditioned upon consummation of
the proposed Crow Assets Acquisition and issues related to corporate
governance following consummation of the Merger. Smith Barney also reviewed
with the Wyndham Board the financial aspects of the Revised Patriot Proposal
and the valuation methodologies being utilized by Smith Barney in connection
with its financial analysis of such transaction.
The Wyndham Special Committee met with its financial and legal advisors
immediately following the April 3rd Board meeting. At this meeting the Wyndham
Special Committee discussed its review of the proposed Merger and, in
particular, the consideration to be received by the Wyndham stockholders.
While noting that the cash and unpaired stock election provision in the
Revised Patriot Proposal was designed to satisfy REIT qualification issues
relating to the amount of stock that could be owned by a Wyndham stockholder
following the Merger, the Wyndham Special Committee reaffirmed its position
that all Wyndham stockholders should have the same right to receive cash in
connection with the Merger that CF Securities would have under the Stock
Purchase Agreement. Following the meeting, legal counsel for the Wyndham
Special Committee communicated this position to Wyndham's legal counsel. In
addition, legal counsel for the Wyndham Special Committee communicated the
position of the Wyndham Special Committee that one of its members should be
appointed to the "Interim Transactions Committee" that was being contemplated
to, among other things, approve major transactions by Old Patriot REIT,
Patriot REIT and Patriot Operating Company prior to the consummation of the
Merger.
At the Boston meetings, the parties discussed various management and
corporate governance issues, including management structures for the Patriot
Companies following the Merger. The Revised Patriot Proposal contemplated
that, following the Merger, Mr. Nussbaum would continue to serve as Chairman
and Chief Executive Officer of Patriot REIT, and Mr. Carreker would serve as
Chief Executive Officer of Patriot Operating Company. In the course of their
meetings, the parties also proposed that Mr. Evans would assume the position
of President of Patriot REIT following the Merger, while Thomas W. Lattin,
Patriot REIT's current President, would assume a senior executive position at
Wyndham International with responsibility for third-party management and
franchising of the Wyndham brands. It was also proposed that Ms. Raymond,
Wyndham's Executive Vice President and Chief Financial Officer, would join
Patriot REIT as an Executive Vice President and Chief Financial Officer
following the Merger, while Rex E. Stewart, Patriot REIT's Chief Financial
Officer,
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would shift to Wyndham International as Executive Vice President and Chief
Financial Officer, allowing the Patriot Companies to better utilize Ms.
Raymond's capital markets skills and Mr. Stewart's extensive experience in
direct hotel management.
In light of the unique nature of the paired share structure and the fact
that, prior to the Cal Jockey Merger, significant disputes had arisen between
the Board of Directors of Cal Jockey and the management and Board of Directors
of Bay Meadows, management of Old Patriot REIT expressed concerns regarding
cooperation between Patriot REIT and Wyndham International following the
Merger. Specifically, Messrs. Nussbaum and Evans indicated that the initial
members to the Boards of Directors of both Patriot REIT and Wyndham
International following the Merger would need to include a majority of
nominees of Patriot REIT, that Patriot REIT would need to retain sole
authority for the issuance of paired equity or convertible securities of the
Patriot Companies, and that specific procedures would need to be established
to ensure cooperation between the Patriot Companies following the Merger.
After extensive discussion, it was proposed that the two companies would sign
a binding cooperation agreement that would mandate cooperation between Patriot
REIT and Wyndham International following the Merger and would provide
mechanisms to resolve disputes should they arise. The parties also proposed
that the cooperation agreement would include provisions vesting in Patriot
REIT the sole authority to issue paired equity and convertible securities of
the Patriot Companies and which would limit the ability of Wyndham
International to issue unpaired equity following the Merger. Additionally, the
parties proposed to form a Cooperation Committee comprised of the Chairman of
Patriot REIT, the Chairman of Wyndham International, a designee of the Patriot
REIT Board and the President of Wyndham International. Finally, the parties
proposed that the Boards of Directors of both Patriot REIT and Wyndham
International would be expanded to include 11 members each, with Wyndham
having the right to designate two members of the Patriot REIT Board and three
members of the Wyndham International Board and with CF Securities having the
right to designate one member of each Board. It was also proposed that Mr.
Carreker would serve as Chairman of the Wyndham International Board, and that
Messrs. Carreker and Nussbaum would also serve as members of the Board of
Directors of Patriot REIT and Wyndham International, respectively.
Following the Wyndham Board and Wyndham Special Committee meetings on April
3rd, negotiations between Wyndham and Old Patriot REIT and their respective
financial and legal advisors resumed in Boston and continued until April 14,
1997. On several occasions during that period Wyndham management
representatives and the legal advisors for Wyndham updated, and received input
from, members of the Wyndham Special Committee and its financial and legal
advisors.
On April 7, 1997, the Old Patriot REIT Board met to discuss the progress of
negotiations of the Merger, the Stock Purchase and the Crow Assets
Acquisition. At this meeting, Messrs. Nussbaum and Evans and Old Patriot
REIT's legal counsel and financial advisors updated the Old Patriot REIT Board
on the status of the negotiations. Messrs. Nussbaum and Evans briefed the Old
Patriot REIT Board on the key issues under discussion and the relative
positions of the parties with respect to such issues. The key issues included
(i) whether all Wyndham stockholders should have the right to receive cash in
connection with the Merger, (ii) whether the Wyndham Special Committee should
have the right to approve any amendments to the definitive documents relating
to the Merger, the Stock Purchase and the Crow Assets Acquisition, (iii)
whether Wyndham should have the right to approve major transactions by Old
Patriot REIT between the signing of definitive documentation and the closing,
(iv) Wyndham's ability to terminate the Merger Agreement to accept another
proposal to the extent required by the fiduciary duties of its Board of
Directors and (v) the proposed timing of the consummation of the Merger in
view of the then pending Cal Jockey Merger.
After deliberation of these issues by the Old Patriot REIT Board, the
directors discussed with Messrs. Nussbaum and Evans acceptable parameters
within which such issues were authorized to be resolved.
At the April 7th meeting of the Old Patriot REIT Board, Messrs. Nussbaum and
Evans, with the assistance Old Patriot REIT's legal counsel, also explained to
the Old Patriot REIT Board the proposed operation of certain corporate
governance mechanisms that would be implemented by the Patriot Companies in
connection with the Merger through the Cooperation Agreement and the
Cooperation Committee. The Old Patriot REIT Board then
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reviewed with Old Patriot REIT's legal counsel the terms of the proposed
merger agreement and other related agreements and related legal issues, and
received a presentation from PaineWebber concerning the financial aspects of
the Merger, the Stock Purchase and the Crow Assets Acquisition, at which time
PaineWebber updated the Old Patriot REIT Board with respect to PaineWebber's
financial analysis of the transactions. Following further discussion by the
Old Patriot REIT Board, the Old Patriot REIT Board voted to approve the April
Merger Agreement, the Stock Purchase Agreement, the Omnibus Purchase and Sale
Agreement and the transactions contemplated thereby on substantially the terms
discussed at the meeting, and authorized management to complete negotiations
of, and execute, such agreements.
On April 11, 1997, the Wyndham Special Committee met with its advisors and
received an update from its legal and financial advisors on the negotiations
between the parties regarding the Merger. Merrill Lynch also presented an
update of its preliminary financial analysis of the transaction and reviewed
the financial terms of the Crow Assets Acquisition and various analyses
thereof. Also on April 11 substantially complete drafts of the definitive
documents relating to the Merger, the Stock Purchase and the Crow Assets
Acquisition were distributed to the Wyndham Board members, including the
members of the Wyndham Special Committee.
On April 13, 1997, the Wyndham Special Committee met again with its
financial and legal advisors and received an update on the status of the
negotiations with Old Patriot REIT and the related documentation. The Wyndham
Special Committee meeting was followed that evening by a meeting of the
Wyndham Board. Mr. Carreker updated the Wyndham Board generally on the status
of the negotiations, and Wyndham's legal advisors reviewed with the directors
the current terms of the Merger and the current terms of the proposed Stock
Purchase and Crow Assets Acquisition. Smith Barney then made a financial
presentation with respect to the proposed Merger and delivered to the Wyndham
Board its oral opinion (subsequently confirmed by delivery of a written
opinion dated April 14, 1997, the date of the April Merger Agreement) to the
effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Merger Consideration was fair, from a
financial point of view, to the holders of Wyndham Common Stock. At the
request of the Wyndham Special Committee, the Wyndham Board meeting was then
adjourned in order to allow the Wyndham Special Committee to meet separately.
The Wyndham Special Committee then met with its financial and legal advisors
and discussed the current terms of the Merger, the Stock Purchase and the Crow
Assets Acquisition. Merrill Lynch delivered its oral opinion, which opinion
was confirmed in a written opinion dated April 14, 1997, to the effect that
the Merger Consideration to be received by the holders of Wyndham Common Stock
(other than CF Securities) in the Merger was fair to such stockholders from a
financial point of view. The Wyndham Special Committee unanimously found that
the Merger Agreement and the Related Transactions were fair to and in the best
interests of the stockholders of Wyndham and recommended that the Wyndham
Board approve the Merger Agreement and the Related Transactions.
Following the Wyndham Special Committee meeting, the Wyndham Board
reconvened, at which time the Wyndham Special Committee reported to the
Wyndham Board that Merrill Lynch had delivered its fairness opinion and that
the Wyndham Special Committee had unanimously approved the Merger Agreement
and had adopted a recommendation that the Wyndham Board approve the Merger
Agreement. The Wyndham Board, after finding that the Merger and Related
Transactions were fair to, and in the best interests of, the holders of
Wyndham Common Stock, then unanimously approved the Merger Agreement and the
Related Transactions.
Preparation of final versions of the Merger Agreement, the Stock Purchase
Agreement and the Omnibus Purchase and Sale Agreement and related documents
continued through the evening of April 13th and early morning of April 14th.
The Wyndham Special Committee held a telephonic meeting early in the morning
of April 14th to review resolution of certain remaining issues in the final
documentation. On April 14, 1997, the April Merger Agreement and related
documents were executed and delivered and Wyndham and Old Patriot REIT issued
a joint public announcement of the Merger and the Related Transactions and the
Crow Assets Acquisition.
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Following consummation of the Cal Jockey Merger, on July 24, 1997, the
Patriot REIT Board and the Patriot Operating Company Board ratified the Merger
Agreement and the Merger and the Related Transactions pursuant to the Patriot
REIT Ratification Agreement and the Patriot Operating Company Ratification
Agreement, respectively, as required by the terms of the Merger Agreement. At
the July 24th meeting of the Patriot REIT Board and the Patriot Operating
Company Board, PaineWebber made a presentation concerning the financial
aspects of the Merger, the Stock Purchase and the Crow Assets Acquisition.
PaineWebber also delivered an opinion to the Patriot REIT Board and the
Patriot Operating Company Board, dated as of July 24, 1997, to the effect
that, as of the date of such opinion, the Merger Consideration was fair, from
a financial point of view, to the holders of Paired Shares.
As a result of Patriot REIT's due diligence investigation of CF Securities'
ownership of Wyndham Common Stock and certain other relevant considerations,
in September 1997 management of Patriot REIT and Patriot Operating Company
concluded that to ensure that Patriot REIT remained in compliance with
applicable REIT qualification requirements under the Code following the Merger
and the Stock Purchase, the current ownership limits contained in the Excess
Share Provisions of the Patriot REIT Charter and the Patriot Operating Company
Charter would have to be lowered in connection with the Merger. Accordingly,
Patriot REIT and Patriot Operating Company management proposed that such
ownership limits be lowered from 9.8% to 8.0% (except in the case of Look-
Through Entities, for which the 9.8% limit would remain). In addition, Patriot
REIT and Patriot Operating Company management proposed that neither Wyndham
nor Patriot REIT should be required to consummate the Merger in the event that
stockholders of Patriot REIT and Patriot Operating Company did not approve
amendments to the charters reflecting, among other things, the reduction in
the ownership limits and implementation of the Cooperation Agreement. It was
also proposed that the date after which either party would have the right to
terminate the Merger Agreement be extended from December 7, 1997 to December
16, 1997. In discussions between management representatives of Wyndham and the
Patriot Companies and their respective legal advisors, the parties considered
the aforementioned proposals and the fact that an amendment to the April
Merger Agreement would be necessary to implement them. Following these
discussions, in October 1997 a draft of the Merger Agreement Amendment
reflecting the proposed changes was circulated among the parties and their
respective legal and financial advisors.
The Patriot REIT Board and the Patriot Operating Company Board approved the
Merger Agreement Amendment on October 31, 1997, and the Wyndham Special
Committee and the Wyndham Board approved the Merger Agreement Amendment on
October 30, 1997. In deciding to approve the Merger Agreement Amendment, each
of the parties' respective Boards of Directors concluded that preservation of
Patriot REIT's status as a REIT was of paramount importance in determining
whether to proceed with the Merger and the Related Transactions.
Thereafter, on November 3, 1997, Patriot REIT, Patriot Operating Company and
Wyndham executed the Merger Agreement Amendment.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATIONS OF THE
BOARDS OF DIRECTORS OF THE PATRIOT COMPANIES
The Old Patriot REIT Board unanimously approved the Merger Agreement and the
Related Transactions at a meeting of the Old Patriot REIT Board on April 7,
1997, and thereafter on July 24, 1997 the Patriot REIT Board and the Patriot
Operating Company Board unanimously ratified the Merger Agreement and the
Related Transactions pursuant to the Ratification Agreements. On October 31,
1997, the Patriot REIT Board and the Patriot Operating Company Board
unanimously approved the Merger Agreement Amendment. For purposes of the
following discussion, the term "Patriot REIT Board" refers to the Board of
Directors of Old Patriot REIT prior to consummation of the Cal Jockey Merger,
and the Board of Directors of Patriot REIT following consummation of the Cal
Jockey Merger. EACH OF THE PATRIOT REIT BOARD AND THE PATRIOT OPERATING
COMPANY BOARD BELIEVES THAT THE MERGER AND THE RELATED TRANSACTIONS ARE FAIR
TO AND IN THE BEST INTERESTS OF PATRIOT REIT AND ITS STOCKHOLDERS AND PATRIOT
OPERATING COMPANY AND ITS STOCKHOLDERS,
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RESPECTIVELY, AND UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS OF PATRIOT REIT
VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL, "FOR" APPROVAL OF THE PAIRING
AGREEMENT AMENDMENT PROPOSAL AND "FOR" APPROVAL OF THE PATRIOT REIT CHARTER
AMENDMENT PROPOSAL AND THAT STOCKHOLDERS OF PATRIOT OPERATING COMPANY VOTE
"FOR" APPROVAL OF THE MERGER PROPOSAL, "FOR" APPROVAL OF THE PAIRING AGREEMENT
PROPOSAL AND "FOR" APPROVAL OF THE PATRIOT OPERATING COMPANY CHARTER AMENDMENT
PROPOSAL, RESPECTIVELY. In reaching this determination, the Patriot REIT Board
consulted with Patriot REIT management and the Patriot Operating Company Board
consulted with Patriot Operating Company management, as well as the financial
advisors, legal counsel and accountants of the Patriot Companies, and
considered a number of factors. The material factors considered by each of the
Patriot REIT Board and the Patriot Operating Company Board in reaching the
foregoing conclusions are described below.
In making its determination with respect to the Merger and the Related
Transactions, the Patriot REIT Board and the Patriot Operating Company Board
considered the following factors, all of which the Patriot REIT Board and the
Patriot Operating Company Board deemed favorable, in approving the Merger
Agreement and the Related Transactions:
(i) Fully Integrated Hotel Company. Management of the Patriot Companies
believe that, following the Merger, the Patriot Companies will be perceived
as a nationally branded, fully integrated hotel company, with enhanced
hotel acquisition, ownership, management, construction and development
capabilities within the unique paired share structure, while maintaining
Patriot REIT's tax status as a REIT. Management of the Patriot Companies
believe that, from a hotel acquisitions perspective, Patriot REIT will have
the ability to maximize returns on newly acquired properties by leasing
them to Wyndham International. Additionally, management believes that
following the Merger, Patriot REIT will have the ability to create value by
reflagging existing and subsequently acquired hotel properties utilizing
the Wyndham brand.
(ii) Acquisition of Recognized Brand. The Merger will result in the
Patriot Companies acquiring the marketing power of a nationally and
internationally recognized hotel brand. In the Merger, Patriot REIT will
acquire the Wyndham, Wyndham Garden and Wyndham Hotels & Resorts
proprietary brand names.
(iii) Acquisition of Experienced Hotel Management Organization. The
Merger will result in the Patriot Companies obtaining the benefit of an
experienced hotel management organization led by James D. Carreker, the
current Chief Executive Officer of Wyndham. Management of the Patriot
Companies believe that the hotel management organization of Wyndham will
significantly enhance the hotel management operations currently conducted
by the Patriot Companies.
(iv) Increase in Owned Property. The Merger will significantly increase
the amount of property owned by the Patriot Companies. In this regard, the
Patriot REIT Board and the Patriot Operating Company Board considered the
fact that pursuant to the Merger, the Patriot Companies will acquire
Wyndham's portfolio of owned or leased hotels and management and franchise
agreements associated with Wyndham's managed and franchised properties
throughout North America. In addition, pursuant to the Crow Assets
Acquisition, Patriot REIT will acquire up to 11 full-service Wyndham-
branded hotels with 3,072 rooms, located throughout the United States.
(v) Potential Effect on FFO and FFO Multiple. The Patriot REIT Board and
the Patriot Operating Company Board reviewed information relating to the
financial performance, business operations and prospects of the Patriot
Companies and Wyndham and current industry, economic and market conditions.
In this regard, the Patriot REIT Board and the Patriot Operating Company
Board viewed as favorable to its determination, analysis of the management
of Patriot REIT and Patriot Operating Company which indicated that the
Merger would be accretive to the Patriot Companies' FFO per share in future
periods. The Patriot REIT Board and the Patriot Operating Company Board
also believe the Merger may have a favorable effect over time on the FFO
multiple at which the Paired Shares are traded by creating a nationally
branded, fully integrated hotel company within a unique tax-advantaged
structure.
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(vi) Effect on Total Market Capitalization. The total market
capitalization of the Patriot Companies will increase as a result of the
Merger. For example, on a pro forma combined basis the total market
capitalization of the paired share structure of the Patriot Companies as of
June 30, 1997 (assuming consummation of the Merger and the Related
Transactions and the Crow Assets Acquisition and including the $100 million
of Cash Consideration to be paid by Patriot REIT pursuant to Cash
Elections) would be approximately $5.1 billion, which is considerably
greater than the Patriot Companies' pro forma combined total market
capitalization of approximately $3.5 billion on such date (prior to
consummation of the Merger and the Related Transactions and the Crow Assets
Acquisition). The calculation of the pro forma total market capitalization
of the Patriot Companies is based on the closing market price on the NYSE
of the Paired Shares on November 3, 1997 of $31 1/2. Based in part on
discussions with advisors, investment banking firms and lenders, the
Patriot REIT Board and the Patriot Operating Company Board believe that
this increased total market capitalization will provide stockholders of the
Patriot Companies with enhanced liquidity and will make the Paired Shares a
more attractive investment for institutional investors, thereby enhancing
the Patriot Companies' ability to raise additional equity capital in the
future.
(vii) Opinion of PaineWebber. The opinion, analyses and presentations of
PaineWebber described below under "--Opinion of Financial Advisor to the
Patriot Companies," including PaineWebber's opinion to the effect that, as
of the date of such opinion, and subject to the considerations and
limitations set forth in such opinion, the Merger Consideration (including
the consideration to be paid to CF Securities pursuant to the Stock
Purchase Agreement) was fair from a financial point of view to the
stockholders of Patriot REIT and Patriot Operating Company. The Patriot
REIT Board and the Patriot Operating Company Board viewed PaineWebber's
opinion as favorable to its determination because PaineWebber is an
internationally recognized investment banking firm with experience in the
valuation of businesses and their securities in connection with mergers and
acquisitions and in providing advisory services and raising capital for
companies in the real estate industry.
The Patriot REIT Board and the Patriot Operating Company Board also
considered the following factors, all of which the Patriot REIT Board and the
Patriot Operating Company Board considered negative, in its deliberations
concerning the Merger:
(i) Transaction Costs. The significant transaction costs involved with
consummating the Merger and the Related Transactions (estimated to be
approximately $10.9 million) and the substantial management time and effort
required to effectuate the Merger and to integrate the businesses of
Patriot REIT, Patriot Operating Company and Wyndham. See "Unaudited Pro
Forma Financial Statements."
(ii) Pro Forma Combined Debt Obligations Following the Merger. The
Patriot Companies' pro forma combined debt obligations will have increased
significantly following the Merger. The increase in the Patriot Companies'
ratio of debt to total market capitalization could adversely affect the
market for the Paired Shares or inhibit the Patriot Companies' ability to
raise capital and issue equity in both the public and private markets. The
Unaudited Pro Forma Financial Statements contained herein illustrate the
effect of the Merger on the Patriot Companies' pro forma combined
indebtedness as of June 30, 1997. See "Risk Factors--Substantial Debt
Obligations."
(iii) Pro Forma Dilution. The Merger and the Related Transactions are
dilutive to net income per share and FFO per share on a pro forma combined
historical basis for the Patriot Companies. The Unaudited Pro Forma
Financial Statements contained herein illustrate the effect of the Merger
on the Patriot Companies' net income per share and FFO per share on a pro
forma combined basis. See "Unaudited Pro Forma Financial Statements."
(iv) Benefits to Wyndham Affiliates. The benefits of the transaction to
be received by certain affiliates of Wyndham. See "--Interests of Certain
Officers, Directors and Stockholders of Wyndham."
(v) Anticipated Benefits. The risk that the anticipated benefits of the
Merger and the Related Transactions might not be fully realized.
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In the opinion of the Patriot REIT Board and the Patriot Operating Company
Board, the factors listed above represent the material potential risks and
adverse consequences to the existing stockholders of the Patriot Companies
which could occur as a result of the transaction. In considering the Merger
and the Related Transactions, the Patriot REIT Board and the Patriot Operating
Company Board considered the impact of these risks and consequences on the
existing stockholders of the Patriot Companies. In the opinion of the Patriot
REIT Board and the Patriot Operating Company Board, however, these potential
risks and consequences were outweighed by the potential positive factors
considered by the Patriot REIT Board and the Patriot Operating Company Board,
which are described above. Accordingly, the Patriot REIT Board and the Patriot
Operating Company Board voted to approve the Merger Agreement and the Related
Transactions.
In view of the wide variety of factors considered by the Patriot REIT Board
and the Patriot Operating Company Board, the Patriot REIT Board and the
Patriot Operating Company Board did not find it practicable to, and did not,
quantify or otherwise attempt to assign relative weights to the specific
factors considered in making its determination.
In the event the Merger and the Related Transactions are not consummated for
any reason, Patriot REIT will continue to pursue its business objectives of
(i) maximizing FFO and cash available for distribution to holders of Patriot
REIT Common Stock, (ii) increasing distributions per share of Patriot REIT
Common Stock, (iii) increasing the value of its properties by continuing its
growth through the active acquisition and development of new hotels and other
properties and (iv) holding its properties for long-term investment. In
addition, Patriot REIT may seek other business combination opportunities and
additional debt or equity financing.
In the event the Merger and the Related Transactions are not consummated for
any reason, Patriot Operating Company will continue to pursue its business
objectives principally of leasing and managing hotels, other properties, and
of seeking opportunities to acquire hotel operators, owners of hotel
franchises or brands and independent hotel management companies. In addition,
Patriot Operating Company may seek other business combination opportunities
and additional debt or equity financing.
OPINION OF FINANCIAL ADVISOR TO THE PATRIOT COMPANIES
Old Patriot REIT retained PaineWebber to act as its financial advisor in
connection with a possible business combination with Wyndham. In such
capacity, PaineWebber participated in discussions and negotiations among Old
Patriot REIT and Wyndham and rendered financial advice to Old Patriot REIT
including rendering an opinion as to whether the Merger Consideration
(including the consideration to be paid to CF Securities pursuant to the Stock
Purchase Agreement) was fair, from a financial point of view, to the holders
of Old Patriot REIT Common Stock.
The management of Old Patriot REIT and the Old Patriot REIT Board were
familiar with certain individuals at PaineWebber because those individuals
assisted Old Patriot REIT with its Initial Offering and its follow-on offering
in 1996, arranged for Old Patriot REIT's secured line of credit and served as
financial advisor to Old Patriot REIT in connection with the Cal Jockey
Merger. Based upon these relationships, the Old Patriot REIT Board retained
PaineWebber to act as its financial advisor. The Old Patriot REIT Board also
based its decision to retain PaineWebber upon PaineWebber's prominence as an
investment banking and financial advisory firm with experience in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, distributions of securities, private
placements and valuations for corporate purposes, especially with respect to
REITs and other real estate companies.
On March 12, 1997, PaineWebber delivered an oral opinion to the Old Patriot
REIT Board to the effect that, as of the date of such opinion, based on
PaineWebber's review and subject to certain assumptions and limitations
described therein, the merger consideration was fair, from a financial point
of view, to the holders of Old Patriot REIT Common Stock. In connection with
the Ratification Agreements by the Patriot Companies, PaineWebber was asked to
update the analysis underlying its initial opinion and to render an opinion to
both the Patriot REIT Board and the Patriot Operating Company Board as to
whether the Merger Consideration (including
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the consideration to be paid to CF Securities pursuant to the Stock Purchase
Agreement) was fair, from a financial point of view, to the holders of Paired
Shares. Thereafter, PaineWebber delivered its written opinion dated July 24,
1997 to the Patriot REIT Board and the Patriot Operating Company Board to the
effect that, as of the date of such opinion, based on PaineWebber's review and
subject to the considerations and limitations described therein, the Merger
Consideration (including the consideration to be paid to CF Securities
pursuant to the Stock Purchase Agreement) was fair, from a financial point of
view, to the holders of Paired Shares. The PaineWebber Opinion does not
constitute a recommendation to any holder of Paired Shares as to how any such
holder should vote on the Merger Proposal or any other proposal. Additionally,
the PaineWebber Opinion does not address the business decisions of the Boards
of Directors of Old Patriot REIT, Patriot REIT or Patriot Operating Company to
engage in the transactions contemplated by the Merger Agreement.
A COPY OF THE PAINEWEBBER OPINION DATED JULY 24, 1997, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF
THE REVIEW UNDERTAKEN BY PAINEWEBBER, IS ATTACHED HERETO AS ANNEX H AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE PAINEWEBBER OPINION
SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
SUCH OPINION. HOLDERS OF PAIRED SHARES ARE URGED TO READ IN ITS ENTIRETY THE
PAINEWEBBER OPINION. THE PAINEWEBBER OPINION IS ADDRESSED TO THE BOARDS OF
DIRECTORS OF PATRIOT REIT AND PATRIOT OPERATING COMPANY AND ADDRESSES ONLY THE
FAIRNESS FROM A FINANCIAL POINT OF VIEW OF THE MERGER CONSIDERATION (INCLUDING
THE CONSIDERATION TO BE PAID TO CF SECURITIES PURSUANT TO THE STOCK PURCHASE
AGREEMENT) AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF PAIRED
SHARES AS TO HOW SUCH HOLDER SHOULD VOTE AT THE PATRIOT SPECIAL MEETINGS.
In connection with rendering its opinion, PaineWebber, among other things:
(i) reviewed Old Patriot REIT's Annual Reports, Forms 10-K and related
financial information for the fiscal years ended December 31, 1995 and
December 31, 1996, and Old Patriot REIT's Form 10-Q and the related unaudited
financial information for the quarterly period ended March 31, 1997 and the
joint proxy statement and prospectus filed on June 2, 1997 regarding the
merger of Old Patriot REIT with and into Cal Jockey; (ii) reviewed Wyndham's
Registration Statements relating to the concurrent initial public offering of
Wyndham Common Stock and public offering of Wyndham Senior Subordinated Notes
in May 1996, and all amendments thereto, Wyndham's Form 10-K and related
financial information for the fiscal year ended December 31, 1996, Wyndham's
Form 10-Q and the related unaudited financial information for the quarterly
period ended March 31, 1997, and preliminary unaudited financial information
for the quarterly period ended June 30, 1997; (iii) reviewed certain
information, including financial forecasts, relating to the business,
earnings, cash flow, assets and prospects of the Patriot Companies and Wyndham
furnished to PaineWebber by the Patriot Companies and Wyndham, respectively
(including, with respect to Wyndham, forecasts with respect to Wyndham's
acquisition of ClubHouse); (iv) reviewed certain information, including
financial forecasts, relating to the business, cash flow, earnings, and
prospects of the Crow Assets furnished to PaineWebber by Wyndham as the
manager of such properties; (v) conducted discussions with members of senior
management of the Patriot Companies and Wyndham concerning their respective
businesses and prospects; (vi) compared the results of operations of Wyndham
with those of certain companies which PaineWebber deemed to be reasonably
similar to Wyndham; (vii) compared the acquisition price of the Merger and
Related Transactions relative to the financial performance of Wyndham with the
acquisition price relative to the financial performance of certain other
acquired companies in other mergers and acquisitions which PaineWebber deemed
to be relevant; (viii) considered the pro forma effect of the Merger and
Related Transactions and the Crow Assets Acquisition on the Patriot Companies'
funds from operations and other financial measures; (ix) reviewed the
financial terms of the Merger Agreement, the Stock Purchase Agreement and the
Omnibus Purchase and Sale Agreement; and (x) reviewed such other financial
studies and analyses and performed such other investigations and took into
account such other matters as PaineWebber deemed necessary.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was either publicly available or
supplied, communicated or otherwise made available to it by or
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on behalf of the Patriot Companies and Wyndham, and PaineWebber did not assume
any responsibility to independently verify such information or undertake an
independent appraisal of the assets of the Patriot Companies or Wyndham. With
respect to the financial forecasts examined by it, PaineWebber assumed that
they were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the respective managements of the
Patriot Companies and Wyndham as to the future performance of the Patriot
Companies and Wyndham, respectively, and their respective assets. With respect
to the financial forecasts for the Crow Assets, PaineWebber assumed that they
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgments of the management of Wyndham (as manager of
the Crow Assets) as to the future performance of such properties. At the
Patriot Companies' direction, PaineWebber assumed that Patriot REIT is not
subject to Section 269B(a)(3) of the Code, that Patriot REIT will qualify to
be treated as a "real estate investment trust" within the meaning of the Code
before and after giving effect to the Merger and the Stock Purchase, that the
representations and warranties of each of the parties to the Merger Agreement
were true and correct as of the date of the Merger Agreement or as of such
other date or dates specified therein and will be true and correct at the
closing of the Merger to the extent required to be true and correct on such
date under the terms of the Merger Agreement, in each case subject to such
qualifications as may be specified therein, and that the Merger will be
treated as a tax-free reorganization for federal income tax purposes.
PaineWebber further assumed that the Merger and the Stock Purchase will be
consummated in accordance with the terms described in the Merger Agreement and
the Stock Purchase Agreement, respectively. PaineWebber's analyses used in
preparing the PaineWebber Opinion assumed a closing date for the Merger of
December 1, 1997. PaineWebber assumed, with the Patriot Companies' consent,
that all material assets and liabilities (contingent or otherwise, known or
unknown) of the Patriot Companies and Wyndham are as set forth in their
respective consolidated financial statements. The PaineWebber Opinion is based
upon regulatory, economic, monetary and market conditions existing on the date
thereof. Furthermore, PaineWebber expressed no opinion as to the price or
trading range at which Paired Shares will trade in the future.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances, and
therefore, such opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of the analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete picture of the process underlying the
PaineWebber Opinion. Any estimates contained in these analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. In addition, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses may
actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty, and neither the Patriot Companies nor
PaineWebber assumes responsibility for the accuracy of such analyses or
estimates.
The following paragraphs summarize the significant quantitative and
qualitative analyses performed by PaineWebber in arriving at the PaineWebber
Opinion.
Discounted Cash Flow Valuation
The discounted cash flow valuation is based on the assumption that the value
of a business can be determined with reference to the current value of the
future cash flow that the assets will generate for their owners. To establish
a current value under this approach, future cash flow must be estimated and an
appropriate discount rate determined. PaineWebber analyzed Wyndham based on a
discounted cash flow analysis for assets in place (including those to be
acquired in connection with the ClubHouse acquisition) utilizing projections
of unleveraged free cash flow (defined as pre-tax income plus interest
expense, depreciation and amortization, excluding amortization of deferred
gains, less assumed capital expenditure reserves) prepared by the management
of Wyndham for the years 1997 through 1999, inclusive. PaineWebber also
determined a range of terminal enterprise values for Wyndham by applying a
range of multiples of 10.0x to 14.0x to Wyndham's projected earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA") for
1999. PaineWebber then derived a range of values for Wyndham Common Stock by
(i) combining the present value of
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unleveraged free cash flow and the present value of terminal enterprise value,
in each case assuming discount rates of 11.0% to 15.0%, (ii) subtracting net
debt and (iii) dividing by the number of shares of Wyndham Common Stock
outstanding. The discounted cash flow valuation produced a range of values for
Wyndham Common Stock of $26.14 to $42.44. PaineWebber then divided the range
of Wyndham Common Stock values by the closing trading price of Paired Shares
on July 22, 1997 to produce a range of implied ratios for the value of paired
shares to Wyndham Common Stock. These calculations produced a range of implied
ratios of 1.119x to 1.817x. PaineWebber noted that the Exchange Ratio of 1.372
was within the range of implied ratios produced by the discounted cash flow
valuation.
Selected Comparative Public Companies Analysis
Using publicly available information, PaineWebber compared selected
historical and projected financial, operating and stock market performance
data of Wyndham to the corresponding data of certain publicly-traded companies
that PaineWebber considered comparative (the "Comparative Companies"). The
Comparative Companies represented companies which focused on the ownership
and/or management of full-service hotel properties. The Comparative Companies
consisted of Bristol Hotel Company, Doubletree Corporation, Interstate Hotels
Company and Marriott International, Inc.
PaineWebber derived ranges of values for Wyndham Common Stock by applying
the projected earnings per share ("EPS") of Wyndham for the years ending
December 31, 1997 and 1998 to the corresponding range of EPS multiples for the
Comparative Companies. The EPS projections for Wyndham were provided by
Wyndham management, and included external growth assumptions. The EPS
estimates for the Comparative Companies were based on average research analyst
earnings estimates for each period as reported by First Call. In calculating
the EPS multiples for the selected periods, the July 22, 1997 closing stock
trading prices of the Comparative Companies were used. PaineWebber observed
that (i) the EPS multiples for the Comparative Companies for the year ending
December 31, 1997 ranged from 24.7x to 29.3x and (ii) the EPS multiples for
the Comparative Companies for the year ending December 31, 1998 ranged from
20.6x to 23.8x. Based on Wyndham's projected EPS and the range of EPS
multiples for the Comparative Companies for the year ending December 31, 1997,
this method produced a range of values for Wyndham Common Stock of $22.02 to
$26.08. Based on Wyndham's projected EPS and the range of EPS multiples for
the Comparative Companies for the year ending December 31, 1998, this method
produced a range of values for Wyndham Common Stock of $26.76 to $30.96.
PaineWebber also derived ranges of values for Wyndham Common Stock based on
Wyndham's projected EBITDA for the years ending December 31, 1997 and December
31, 1998 and a range of EBITDA multiples for the Comparative Companies. The
projected EBITDA for Wyndham was supplied by Wyndham's management and included
external growth assumptions. The EBITDA for the Comparative Companies were
based on operating data for the year ending December 31, 1996, as reported in
the public filings for each such company. In calculating the EBITDA multiples
for the selected periods, the July 22, 1997 closing stock prices of the
Comparative Companies were used. To compensate for timing differences,
PaineWebber discounted back Wyndham's projected EBITDA for the year ending
December 31, 1998 by one year at an assumed discount rate of 15%. PaineWebber
observed that the EBITDA multiples for the Comparative Companies ranged from
10.1x to 14.4x. Based on Wyndham's projected EBITDA for the year ending
December 31, 1997 and the range of projected EBITDA multiples for the
Comparative Companies, this method produced a range of values for Wyndham
Common Stock of $22.58 to $36.29. Based on Wyndham's projected EBITDA for the
year ending December 31, 1998 and the range of projected EBITDA multiples for
the Comparative Companies, this method produced a range of values of Wyndham
Common Stock of $26.67 to $43.56.
With respect to each range of values of Wyndham Common Stock produced by the
selected comparative public companies analysis, PaineWebber divided the range
of values by the closing stock price of Paired Shares on July 22, 1997 to
produce a range of implied ratios for the value of Paired Shares to Wyndham
Common Stock. These calculations produced (i) a range of implied ratios of
0.943x to 1.116x based on projected EPS for the year ending December 31, 1997,
(ii) a range of implied ratios of 1.146x to 1.325x based on projected EPS for
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the year ending December 31, 1998, (iii) a range of implied ratios of 0.967x
to 1.554x based on projected EBITDA for the year ending December 31, 1997, and
(iv) a range of implied ratios of 1.142x to 1.865x based on projected EBITDA
for the year ending December 31, 1998. PaineWebber observed that while the
Exchange Ratio of 1.372 was not within the range of implied ratios produced by
projected EPS for either time period, it was within the range produced by
projected EBITDA for both time periods. PaineWebber noted that EPS and EPS
multiples may be impacted significantly by the amount of debt carried by a
particular company, and that, in each instance, the debt-to-total market
capitalization ratio for the Comparative Companies was greater than that for
Wyndham. On this basis, PaineWebber concluded that the EBITDA multiple portion
of the selected comparative public companies analysis was more relevant than
the EPS multiple portion of the analysis.
Pro Forma Merger Analysis
PaineWebber performed an analysis of the effect of the Merger on the Patriot
Companies' pro forma FFO per Paired Share for 1997 and 1998, based on
projections and other information supplied by the managements of the Patriot
Companies and Wyndham. Since the Merger is conditioned upon the completion of
a substantial portion of the Crow Assets Acquisition, and the Crow Assets
Acquisition has a material impact on the Patriot Companies' pro forma FFO per
Paired Share, PaineWebber assumed for purposes of the pro forma merger
analysis that the Crow Assets Acquisition will be completed concurrently with
the Merger, with the exception of one property which management of the Patriot
Companies indicated may not be deliverable upon consummation of the Merger.
With respect to projected financial information for the Crow Assets,
PaineWebber utilized projections supplied by Wyndham as the manager of such
properties. PaineWebber combined the projected results of the Patriot
Companies with the projected results of Wyndham and the Crow Assets to arrive
at projected FFO for the Patriot Companies. At the Patriot Companies'
direction, PaineWebber assumed annual synergistic savings resulting from the
Merger of $1.5 million, reflecting primarily duplicative public company and
general and administrative expenses, and assumed that amortization of acquired
intangibles would be added back to net income for the purpose of calculating
FFO. At the Patriot Companies' direction, PaineWebber also assumed full
utilization of the Cash Election as provided for in the Merger Agreement.
PaineWebber adjusted interest expense and FFO for the Patriot Companies to
reflect financing of the Cash Election, refinancing of certain existing
Wyndham indebtedness, the Crow Assets Acquisition and estimated transaction
costs. PaineWebber divided the resulting FFO for the Patriot Companies by the
weighted average number of Paired Shares (including shares issuable upon
exchange of OP Units and other equity securities convertible into Paired
Shares) expected to be outstanding upon consummation of the Merger.
PaineWebber then compared the resulting pro forma FFO per Paired Share for
each year to the projected stand-alone FFO per Paired Share of the Patriot
Companies, based on projections supplied by management of the Patriot
Companies. This analysis indicated that the pro forma impact of the Merger and
the Crow Assets Acquisition was neutral (accretive, by an amount less than 1%)
to FFO per paired share in 1997 and accretive by approximately 7% to FFO per
paired share in 1998. While PaineWebber noted that the Merger and the Crow
Assets Acquisition would also increase the Patriot Companies' ratio of debt-
to-total market capitalization from approximately 23% to approximately 28%,
PaineWebber did not view this increase to be of a material nature so as to
impact the usefulness of the pro forma merger analysis.
Selected Transactions Analysis
PaineWebber reviewed the financial terms, to the extent publicly available,
of five completed mergers between publicly-traded lodging companies (the
"PaineWebber Selected Transactions"). The PaineWebber Selected Transactions
included (acquiror/target): (i) Doubletree Corporation/Red Lion Hotels, Inc.;
(ii) Doubletree Corporation/RFS, Inc.; (iii) Interstate Hotels Company/Trust
Leasing, Inc.; (iv) Extended Stay America, Inc./Studio Plus Hotels, Inc.; and
(v) FelCor Suite Hotels, Inc./Crown Sterling Suites. PaineWebber derived
ranges of values for Wyndham Common Stock based on Wyndham's estimated EBITDA
for the twelve months ended June 30, 1997 and the range of implied EBITDA
multiples paid for each of the PaineWebber Selected Transactions based upon
latest available twelve months financial data. PaineWebber noted that implied
EBITDA multiples paid in the PaineWebber Selected Transactions ranged from
11.2x to 22.8x. Applying these multiples to Wyndham's EBITDA, PaineWebber
calculated a range of values for Wyndham Common Stock of
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$19.66 to $46.74. PaineWebber then divided the range of Wyndham Common Stock
values by the closing price of Paired Shares on July 22, 1997 to produce a
range of implied ratios for the value of paired shares to Wyndham Common
Stock. These calculations produced a range of implied ratios of 0.842x to
2.001x. PaineWebber noted that the Exchange Ratio of 1.372 was within the
range of implied ratios produced by the selected transactions analysis.
Contribution Analysis
PaineWebber reviewed the financial contribution of the Patriot Companies and
Wyndham to the Patriot Companies on a projected pro forma basis. PaineWebber
noted that, on a pro forma basis, shareholders of the Patriot Companies will
receive approximately 74.2% of the Patriot Companies as a result of the
Merger. Using projected results supplied by management of the Patriot
Companies and Wyndham for the years ending December 31, 1997 and December 31,
1998, and without attributing potential synergistic savings from the Merger,
PaineWebber calculated that the Patriot Companies would contribute
approximately 73.7% of the EBITDA of the Patriot Companies in 1997 and
approximately 72.3% of the EBITDA for the Patriot Companies in 1998. In each
case, PaineWebber noted that shareholders of the Patriot Companies will
receive a greater percentage of the equity of the Patriot Companies in the
Merger than would be implied by the pro forma contribution of EBITDA of the
Patriot Companies to the Patriot Companies.
Pursuant to an engagement letter dated April 11, 1997, PaineWebber will
receive a fee of $250,000 for delivery of its opinion (the "Fairness Opinion
Fee"). In addition, PaineWebber will receive a financial advisory fee of $5.4
million upon consummation of the Merger and/or the Crow Assets Acquisition,
against which the Fairness Opinion Fee will be credited. PaineWebber will also
be reimbursed for its reasonable out-of-pocket expenses, up to a maximum of
$25,000 unless previously approved by the Patriot Companies. The Patriot
Companies have also agreed to indemnify PaineWebber, its affiliates and their
respective directors, officers, employees, agents and controlling persons
against certain liabilities, including liabilities under federal securities
laws.
In the past, PaineWebber has provided financial advisory and investment
banking services (including acting as an underwriter) to Old Patriot REIT and
the Patriot Companies, has acted as a lender to Old Patriot REIT, and has and
continues to act as a lender to the Patriot Companies. PaineWebber may provide
financial advisory and investment banking services to, and act as an
underwriter, placement agent or lender to, the Patriot Companies in the
future. In the ordinary course of its business, PaineWebber trades the equity
and debt securities of the Patriot Companies and Wyndham for its own account
and the account of its customers and, accordingly, may at any time hold long
or short positions in such securities. PaineWebber, certain executive officers
and directors of the Patriot Companies and certain affiliates of PaineWebber
and the Patriot Companies have had and may continue to have discussions
regarding joint investments and/or acquisitions (and the financing therefor).
In July 1997, an affiliate of PaineWebber acquired 174 acres of land in San
Mateo, California from Patriot REIT and is currently leasing such land back to
Patriot REIT pursuant to a seven-year ground lease.
REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
BOARD OF DIRECTORS OF WYNDHAM
The Wyndham Board unanimously approved the Merger Agreement and the Related
Transactions at a meeting of the Wyndham Board on April 13, 1997, and
thereafter unanimously approved the Merger Agreement Amendment on October 30,
1997. THE WYNDHAM BOARD BELIEVES THAT THE TERMS OF THE MERGER ARE IN THE BEST
INTERESTS OF WYNDHAM AND ITS STOCKHOLDERS AND RECOMMENDS THAT THE STOCKHOLDERS
OF WYNDHAM VOTE "FOR" APPROVAL OF THE MERGER PROPOSAL.
In unanimously approving the Merger Agreement and the Related Transactions
and in recommending that Wyndham's stockholders approve the Merger Proposal,
the Wyndham Board consulted with Wyndham's management, as well as its
financial and legal advisors, and considered a number of factors. As a result
of the
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interests of certain directors in the Merger and the Related Transactions and
the Crow Assets Acquisition as described below in "--Interests of Certain
Officers, Directors and Stockholders of Wyndham," the Wyndham Board appointed
the Wyndham Special Committee to consider and evaluate the Initial Patriot
Proposal and any other proposals (including the Revised Patriot Proposal) that
might be received as alternatives to the Initial Patriot Proposal. The
material factors considered by the Wyndham Board in reaching the foregoing
conclusions are described below.
In making its determination with respect to the Merger and the Related
Transactions, the Wyndham Board considered the following factors, all of which
the Wyndham Board deemed favorable, in approving the Merger and the Related
Transactions:
(i) Recommendation of Wyndham Special Committee. The unanimous
recommendation by the Wyndham Special Committee that the Board approve the
Merger Agreement, which was made by the Wyndham Special Committee after
receipt by it of the oral opinion of Merrill Lynch on April 13, 1997, which
opinion was confirmed by a written opinion dated April 14, 1997, to the
effect that, as of such dates and based on the assumptions made, matters
considered and limits of review set forth in the written opinion, the
Merger Consideration to be received by the holders of Wyndham Common Stock
(other than CF Securities) in the Merger was fair to such stockholders from
a financial point of view. See "--Reasons for the Merger and the Related
Transactions; Recommendation of the Wyndham Special Committee" and "--
Opinions of Wyndham's Financial Advisors--Merrill Lynch."
(ii) Paired Share Structure. The ability of Wyndham's stockholders
through the Merger to acquire equity interests in the Patriot Companies and
thereby share the value inherent in the paired share structure of Patriot
REIT and Patriot Operating Company. Under this paired share structure,
shares of Patriot REIT and Patriot Operating Company are paired together
and are traded as a single unit. The Wyndham Board believes that this
structure will allow the Patriot Companies, in combination with Wyndham, to
become a nationally branded, fully integrated owner and operator of hotels.
Because the Code was amended in 1983 to prohibit the pairing of shares
between a REIT and an operating company, Patriot REIT is one of only four
publicly-traded paired share REITs remaining in existence.
(iii) Historical and Recent Market Prices of Wyndham Common Stock
Compared to Merger Consideration. The historical market prices and recent
trading activity of Wyndham Common Stock. The Wyndham Board considered as
favorable to its determination the fact that the Exchange Ratio would
enable Wyndham stockholders (subject to their right to make a Cash
Election) to receive Paired Shares pursuant to the Merger with a value of
(a) $30.53 per share of Wyndham Common Stock based on the closing sales
price of Old Patriot REIT Common Stock on April 11, 1997, the last trading
day prior to the public announcement of the Merger, and (b) not less than
$30.00 per share of Wyndham Common Stock unless the Patriot Average Closing
Price is less than $20.87. Such values represent a premium of 16% and
13.9%, respectively, over $26.33, the average closing sales price for
Wyndham Common Stock for the five trading days prior to February 24, 1997,
the date of the first published speculation concerning a potential
transaction between Wyndham and Old Patriot REIT, and a premium of 51% and
47.9%, respectively, over $20.28, the average closing sales price of
Wyndham Common Stock for the fourth quarter of 1996, the last full quarter
prior to Wyndham's receipt of the Revised Patriot Proposal. The closing
sales price of Wyndham Common Stock on April 11, 1997 was $29.63.
(iv) Financial Terms. The financial terms of the Merger, including (a)
the proposed structure as a tax-free reorganization, (b) the Exchange Ratio
characteristic that places no upper limit on the Merger Consideration to be
received for each share of Wyndham Common Stock, while at the same time
assuring that the value of the Merger Consideration will not be less than
$30.00 per share, based on the Patriot Average Closing Price, unless the
Patriot Average Closing Price is less than $20.87, and (c) the flexibility
afforded to Wyndham stockholders by the right to make a Cash Election to
receive cash for at least some portion of their shares of Wyndham Common
Stock in a transaction otherwise designed to qualify as a tax-free
reorganization.
(v) Wyndham's Business, Condition and Prospects. The financial condition,
results of operations and business of Wyndham, on both a historical and
prospective basis, as well as current industry, economic and
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market conditions. In particular, the Wyndham Board considered the
significant consolidation and realignment occurring in the hospitality
industry and its view that Wyndham must grow rapidly or become part of a
larger company in order to achieve greater brand awareness and access to
capital and to compete successfully in the new industry environment.
(vi) Business, Condition and Prospects of the Patriot Companies. The
financial condition, results of operations and business of the Patriot
Companies, on both a historical and prospective basis, and current
industry, economic and market conditions. Wyndham's financial advisors
provided the Wyndham Board with information regarding the Patriot
Companies' financial condition and prospects after conducting business and
financial due diligence. Wyndham's legal counsel also made presentations to
the Wyndham Board and conducted legal due diligence. In evaluating the
prospects of the Patriot Companies, the Wyndham Board considered, among
other things, the performance of the hotels of Old Patriot REIT, the
geographical distribution of its hotels, the strength of its management
team, the success of its recent hotel acquisitions and the reputation of
Old Patriot REIT in the hotel industry. The Wyndham Board also found
favorable the fact that following the Merger, the Wyndham stockholders
would enjoy the increased market capitalization, increased liquidity and
greater financial strength of the Patriot Companies and that over time a
significant number of the Patriot REIT hotels could be converted to the
Wyndham brand.
(vii) Opinion of Smith Barney. The financial presentation and oral
opinion of Smith Barney rendered to the Wyndham Board at its April 13, 1997
meeting (which opinion was subsequently confirmed by delivery of a written
opinion dated April 14, 1997, the date of the April Merger Agreement) to
the effect that, as of the date of such opinion and based upon and subject
to certain matters stated therein, the Merger Consideration was fair, from
a financial point of view, to the holders of Wyndham Common Stock. See "--
Opinions of Wyndham's Financial Advisors--Smith Barney."
(viii) Termination Provisions and Termination Fee. The provisions
contained in the Merger Agreement that permit the Wyndham Board to continue
to receive unsolicited inquiries and proposals regarding other potential
transactions, to negotiate and give information to third parties that make,
or express a bona fide intention to make, such a proposal and to terminate
the Merger Agreement upon payment to Patriot REIT of a $30,000,000
termination fee if the Wyndham Board determines in good faith, after
receiving advice of Wyndham's legal counsel, that such action is necessary
in order for the Wyndham Board to comply with its fiduciary duties and it
authorizes or desires to authorize Wyndham to execute an agreement
providing for a superior transaction. See "The Merger Agreement--Certain
Covenants" and "--Termination." The Wyndham Board believed that this
termination fee was within the range of fees payable in comparable
transactions and that the fee would not, in and of itself, preclude
alternative proposals.
(ix) Continuation of Wyndham Management. The continuing role of Wyndham
management in the Patriot Companies after the Merger, including (a) the
presence of Wyndham designees on the Boards of Directors of both Patriot
REIT and Wyndham International and (b) the selection of the current
President and Chief Executive Officer of Wyndham as the Chief Executive
Officer and Chairman of the Board of Wyndham International, and the
selection of the current Executive Vice President and Chief Financial
Officer of Wyndham as the Chief Financial Officer and an Executive Vice
President of Patriot REIT.
(x) Other Indications of Interest. Wyndham's discussions with other
companies concerning a possible combination and, in particular, the
discussions that had taken place during the latter part of 1996 and early
1997 and the proposal that was received from Company B. The Wyndham Board
considered as favorable the fact that Wyndham did not receive any new
inquiries or proposals regarding a possible business combination following
its public announcement on February 27, 1997 that it was evaluating various
strategic alternatives and the fact that its discussions with Company B
failed to result in a proposal as favorable as the Revised Patriot
Proposal.
The Wyndham Board also considered the following potentially negative factors
in its deliberations concerning the Merger:
(i) Timing Considerations. The fact that the Merger Agreement provides
that the closing for the Merger could not take place prior to October 1,
1997, and the uncertainty added to the probability of
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consummation of the transaction by the length of the period between
execution and delivery of the Merger Agreement and the closing of the
Merger.
(ii) Other Potential Transactions. The number, size and scope of other
pending or potential transactions to be undertaken by Old Patriot REIT or
the Patriot Companies prior to consummation of the Merger and the
incremental difficulty of evaluating the Merger in light of those
transactions. This difficulty was partially offset by the establishment
pursuant to the Merger Agreement of the Interim Transactions Committee to
evaluate and consider certain of such transactions.
(iii) Qualification as a REIT. The very technical requirements for
Patriot REIT to continue to qualify as a REIT, including the fact that
Patriot REIT's ability to qualify as a REIT is dependent upon its continued
exemption from the anti-pairing rules of the Code and the fact that the
exemption is based upon "grandfathering" provisions that have not been the
subject of any judicial or administrative interpretations. See "Risk
Factors--REIT Tax Risks--Dependence on Qualification as a REIT."
(iv) Failure to Satisfy Conditions. The various conditions to Patriot
REIT's obligations to consummate the Merger. See "The Merger Agreement--
Conditions to the Merger."
(v) Leverage of the Patriot Companies. The fact that following the Merger
the Patriot Companies would have substantial indebtedness (approximately
$1.3 billion as of June 30, 1997 on a pro forma combined basis, which
includes Wyndham's total pro forma indebtedness on such date) as compared
to indebtedness of Wyndham of approximately $232 million as of June 30,
1997.
(vi) No Solicitation of Other Proposals; Termination Fees. The fact that
under the terms of the Merger Agreement, Wyndham and its representatives
would be prohibited from encouraging, soliciting or initiating the
submission of any Acquisition Proposal (see "The Merger Agreement--Certain
Covenants"), entering into any agreement for an Acquisition Proposal or
participating in any way in discussions or negotiations with any person in
connection with any Acquisition Proposal, unless such action was required
for the Wyndham Board to comply with its fiduciary duties to stockholders
under applicable law. The Wyndham Board also considered the possibility
that Wyndham could be required, if the Merger Agreement was terminated
under certain circumstances, to pay Patriot REIT a termination fee of
$30,000,000. The Wyndham Board recognized that the inclusion of such
provisions in the Merger Agreement would render it less likely that a more
attractive offer for a business combination with Wyndham would be presented
to Wyndham and its stockholders; however, the Wyndham Board believed that
the Revised Patriot Proposal represented the most attractive strategic
alternative reasonably available to Wyndham and its stockholders. See "The
Merger Agreement--Certain Covenants" and "--Termination."
The Wyndham Board was aware of the potential benefits to the members of the
Wyndham Special Committee discussed below in "--Interests of Certain Officers,
Directors and Stockholders of Wyndham," including the provisions of the Merger
Agreement affording indemnification and directors' insurance to the directors
of Wyndham for actions and omissions of such persons occurring prior to the
Effective Time. These provisions were important to the Wyndham Board; however,
these factors did not affect the Wyndham Board's evaluation or recommendation
of the transaction because such provisions are customary in agreements
relating to business combinations. Other potential benefits were determined to
be of a nature that would not affect the ability of the members of the Wyndham
Special Committee to discharge their duties.
In the opinion of the Wyndham Board, the above factors represent the
material potential adverse consequences which could occur as a result of the
Merger. In considering the Merger and the Related Transactions, the Wyndham
Board considered the impact of these factors on Wyndham's existing
stockholders. In the opinion of the Wyndham Board, however, these potentially
negative factors were outweighed by the potential positive factors considered
by the Wyndham Board which are described above. Accordingly, the Wyndham Board
voted to approve the Merger Agreement and the Related Transactions.
In view of the wide variety of factors considered in connection with its
evaluation of the Merger, the Wyndham Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination.
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REASONS FOR THE MERGER AND THE RELATED TRANSACTIONS; RECOMMENDATION OF THE
WYNDHAM SPECIAL COMMITTEE
At its meeting on April 13, 1997, the Wyndham Special Committee unanimously
determined that the Merger Agreement and the transactions contemplated thereby
were fair to and in the best interest of the stockholders of Wyndham and
recommended to the Wyndham Board that it approve the Merger Agreement. On
October 30, 1997, the Wyndham Special Committee unanimously approved the
Merger Agreement Amendment.
In making its recommendation to the Wyndham Board, the Wyndham Special
Committee consulted its financial and legal advisors and consulted with
Wyndham's management and its advisors, and considered a number of factors,
including those factors considered by the Wyndham Board. See "--Reasons for
the Merger and the Related Transactions; Recommendation of the Board of
Directors of Wyndham." Additional material factors considered by the Wyndham
Special Committee in reaching the foregoing conclusion are described below.
(i) That all shareholders were to be given the same right to elect to
receive either cash or Paired Shares (subject to share ownership
limitations contained in the Excess Share Provisions required to maintain
Patriot REIT's qualification as a REIT for federal income tax purposes).
(ii) The advice of Merrill Lynch, including Merrill Lynch's oral opinion
delivered to the Wyndham Special Committee at its April 13, 1997 meeting,
which opinion was confirmed by a written opinion dated April 14, 1997, to
the effect that as of such dates and based on the assumptions made, matters
considered and limits of review set forth in the written opinion, the
Merger Consideration to be received by the holders of Wyndham Common Stock
(other than CF Securities) in the Merger was fair to such stockholders from
a financial point of view.
(iii) The benefits to be received as a consequence of the Merger and the
Related Transactions and the Crow Assets Acquisition by certain members of
Wyndham management and certain Wyndham directors and by the Crow Family
Entities and certain of their affiliates. See "--Interests of Certain
Officers, Directors and Stockholders of Wyndham."
In its review of the Merger Agreement and Related Transactions, the Wyndham
Special Committee also considered the amounts being paid to the Crow Family
Entities pursuant to the Crow Assets Acquisition and the analysis of Merrill
Lynch with respect thereto.
In connection with its appointment of the Wyndham Special Committee and in
consideration of the time and effort devoted by the Wyndham Special Committee
to the discharge of its duties, the Wyndham Board authorized the payment of
compensation of $20,000 for each member other than the chairman and $25,000
for the chairman, plus (i) in the case of each member other than the chairman,
$5,000 for each meeting attended ($2,500 for each conference telephone
meeting) and (ii) in the case of the chairman, $6,000 for each meeting
attended ($3,000 for each conference telephone meeting); provided that the
total compensation for each member other than the chairman is not to exceed
$35,000 ($45,000 if service extends beyond May 1, 1997) and for the chairman
is not to exceed $40,000 ($50,000 if service extends beyond May 1, 1997).
Wyndham has paid the maximum of $45,000 to each of Messrs. Ward and Leslie
pursuant to the foregoing arrangement. Mr. Decker declined payment of any
compensation for his services.
OPINIONS OF WYNDHAM'S FINANCIAL ADVISORS
Smith Barney
Smith Barney was retained by Wyndham to act as its financial advisor in
connection with the proposed Merger. In connection with such engagement,
Wyndham requested that Smith Barney evaluate the fairness, from a financial
point of view, to the holders of Wyndham Common Stock of the consideration to
be received by such holders in the Merger. On April 13, 1997, at a meeting of
the Wyndham Board held to evaluate the proposed Merger, Smith Barney delivered
an oral opinion (subsequently confirmed by delivery of a written opinion dated
April 14, 1997, the date of the April Merger Agreement) to the Wyndham Board
to the effect that, as of the date
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of such opinion and based upon and subject to certain matters stated therein,
the Merger Consideration was fair, from a financial point of view, to the
holders of Wyndham Common Stock.
In arriving at its opinion, Smith Barney reviewed the April Merger Agreement
and certain related documents and held discussions with certain senior
officers, directors and other representatives and advisors of Wyndham and
certain senior officers and other representatives and advisors of Old Patriot
REIT concerning the businesses, operations and prospects of Wyndham and Old
Patriot REIT. Smith Barney examined certain publicly available business and
financial information relating to Wyndham and Old Patriot REIT as well as
certain financial forecasts and other information and data for Wyndham and Old
Patriot REIT which were provided to or otherwise discussed with Smith Barney
by the respective managements of Wyndham and Old Patriot REIT, including
information relating to certain strategic implications and operational
benefits anticipated to result from the Merger. Smith Barney reviewed the
financial terms of the Merger as set forth in the April Merger Agreement in
relation to, among other things: current and historical market prices and
trading volumes of Wyndham Common Stock and Old Patriot REIT Common Stock; the
historical and projected earnings and other operating data of Wyndham and Old
Patriot REIT; and the capitalization and financial condition of Wyndham and
Old Patriot REIT. Smith Barney also considered, to the extent publicly
available, the financial terms of other transactions recently effected which
Smith Barney considered relevant in evaluating the Merger and analyzed certain
financial, stock market and other publicly available information relating to
the businesses of other companies whose operations Smith Barney considered
relevant in evaluating those of Wyndham and Old Patriot REIT. Smith Barney
also evaluated the potential pro forma financial impact of the Merger on Old
Patriot REIT, after giving effect to the Crow Assets Acquisition and the
consummation of the Cal Jockey Merger and certain of Old Patriot REIT's other
planned acquisitions. In connection with its engagement, Smith Barney was
requested to approach on a limited basis, and held discussions with, certain
third parties to solicit indications of interest in a possible business
combination with Wyndham. In addition to the foregoing, Smith Barney conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as Smith Barney deemed appropriate in arriving at
its opinion. Smith Barney noted that its opinion was necessarily based upon
information available, and financial, stock market and other conditions and
circumstances existing and disclosed, to Smith Barney as of the date of its
opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all financial
and other information and data publicly available or furnished to or otherwise
reviewed by or discussed with Smith Barney. With respect to financial
forecasts and other information and data furnished to or otherwise reviewed by
or discussed with Smith Barney, Smith Barney was advised by the managements of
Wyndham and Old Patriot REIT that such forecasts and other information and
data were reasonably prepared on bases reflecting the best currently available
estimates and judgments of the managements of Wyndham and Old Patriot REIT as
to the future financial performance of Wyndham and Old Patriot REIT and the
strategic implications and operational benefits anticipated to result from the
Merger. Smith Barney assumed, with the consent of the Wyndham Board, that the
Merger will be treated as a tax-free reorganization for federal income tax
purposes. Smith Barney also assumed, with the consent of the Wyndham Board,
that the Cal Jockey Merger would be consummated prior to the Merger, that the
Crow Assets Acquisition will occur concurrently with, or immediately prior to,
the Merger, and that neither the Cal Jockey Merger nor the Merger or the
transactions contemplated thereby or the Crow Assets Acquisition will
adversely affect the REIT status of Patriot REIT. Smith Barney did not express
any opinion as to what the value of the Paired Shares actually will be when
issued to Wyndham stockholders pursuant to the Merger or the price at which
the Paired Shares will trade or otherwise be transferable subsequent to the
Merger. Smith Barney did not make and was not provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of Wyndham, Old Patriot REIT or the Crow Assets nor did Smith Barney make any
physical inspection of the properties or assets of Wyndham or Old Patriot REIT
or of the Crow Assets. Smith Barney based its opinion upon information
available to it, and financial stock market and other conditions and
circumstances that existed and were disclosed to Smith Barney, as of the date
of its opinion. Although Smith Barney evaluated the Merger Consideration from
a financial point of view, Smith Barney was not asked to and did not recommend
the specific consideration payable in the Merger, which was determined through
negotiation between Wyndham and Old Patriot REIT. No
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other limitations were imposed by Wyndham on Smith Barney with respect to the
investigations made or procedures followed by Smith Barney in rendering its
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF SMITH BARNEY DATED APRIL 14, 1997,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS ANNEX I, AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF WYNDHAM COMMON STOCK ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. THE OPINION OF SMITH BARNEY IS DIRECTED TO
THE WYNDHAM BOARD AND RELATES ONLY TO THE FAIRNESS OF THE MERGER CONSIDERATION
FROM A FINANCIAL POINT OF VIEW, DOES NOT ADDRESS ANY OTHER ASPECT OF THE
MERGER OR RELATED TRANSACTIONS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE WYNDHAM SPECIAL
MEETING. THE SUMMARY OF THE OPINION OF SMITH BARNEY SET FORTH IN THIS JOINT
PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF SUCH OPINION.
In preparing its opinion, Smith Barney performed a variety of financial and
comparative analyses, including those described below. The summary of such
analyses does not purport to be a complete description of the analyses
underlying Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analyses and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Accordingly, Smith Barney
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and factors, without considering all analyses and
factors, could create a misleading or incomplete view of the process
underlying such analyses and opinion. In its analyses, Smith Barney made
numerous assumptions with respect to Wyndham, Old Patriot REIT, Patriot REIT,
Patriot Operating Company, the Crow Assets, industry performance, general
business, economic, market and financial conditions and other matters, many of
which are beyond the control of Wyndham, Old Patriot REIT, Patriot REIT and
Patriot Operating Company. The estimates contained in such analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of businesses or
securities do not purport to be appraisals or to reflect the prices at which
businesses or securities actually may be sold. Accordingly, such analyses and
estimates are inherently subject to substantial uncertainty. Smith Barney's
opinion and analyses were only one of many factors considered by the Wyndham
Board in its evaluation of the Merger and should not be viewed as
determinative of the views of the Wyndham Board or management of Wyndham with
respect to the Merger Consideration or the proposed Merger. The analyses of
Smith Barney described below were prepared prior to the Patriot Companies'
July 1997 92.7% stock dividend and, accordingly, per share and exchange ratio
data set forth in such analyses have not been adjusted to reflect such stock
dividend.
The following is a summary of the material analyses performed by Smith
Barney in connection with its opinion dated April 14, 1997:
Selected Company Analysis. Using publicly available information, Smith
Barney analyzed, among other things, the market values and trading multiples
of Wyndham and the following selected publicly traded companies in the lodging
industry: Marriott International, Inc.; Promus Hotels Corporation; La Quinta
Inns, Inc.; Choice Hotels International, Inc.; Doubletree Corporation;
Interstate Hotels Company; Prime Hospitality Corp.; Bristol Hotel Company; and
Capstar Hotel Company (collectively, the "Wyndham Selected Companies"). Smith
Barney compared market values as multiples of, among other things, estimated
calendar 1997 and 1998 net income and adjusted market values (equity market
value, plus total long-term debt and current maturities, less cash) as
multiples of, among other things, latest 12 months and estimated calendar 1997
EBITDA. Net income projections for the Wyndham Selected Companies were based
on estimates of selected investment banking firms and net income projections
for Wyndham were based on internal estimates of the management of Wyndham. All
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multiples were based on closing stock prices as of April 11, 1997. Applying a
range of multiples (excluding outliers) for the Wyndham Selected Companies of
estimated calendar 1997 and 1998 EPS and latest 12 months and estimated
calendar 1997 EBITDA of 18.1x to 27.8x, 14.4x to 17.6x, 9.7x to 13.6x and 7.2x
to 10.5x, respectively, to corresponding financial data for Wyndham resulted
in an equity reference range for Wyndham of approximately $15.49 to $22.61 per
share, as compared to the equity value implied by the Merger Consideration of
approximately $30.53 per share based on a closing stock price of Old Patriot
REIT Common Stock on April 11, 1997.
Using publicly available information, Smith Barney also analyzed, among
other things, the debt to capitalization ratios, estimated calendar year 1997
dividend payout ratios and equity market values of Old Patriot REIT and the
following selected publicly traded companies in the lodging industry: American
General Hospitality; Equity Inns, Inc; Felcor Suite Hotels, Inc; Hospitality
Properties Trust; Innkeepers USA Trust; RFS Hotel Investors Inc.; Starwood
Lodging; Sunstone Hotel Investors, Inc.; and Winston Hotels, Inc.
(collectively, the "Old Patriot REIT Selected Companies" and, together with
the Wyndham Selected Companies, the "Selected Companies"). Smith Barney
compared equity market values as a multiple of estimated calendar year 1997
and 1998 FFO. Dividend payout ratio and FFO projections for the Old Patriot
REIT Selected Companies were based on internal estimates of selected
investment banking firms and dividend payout ratio and FFO projections for Old
Patriot REIT were based on internal estimates of the management of Old Patriot
REIT, after giving effect to the Cal Jockey Merger and certain of Old Patriot
REIT's planned acquisitions. All ratios and multiples were based on closing
stock prices as of April 11, 1997. The ranges of debt to capitalization
ratios, estimated calendar 1997 dividends payout ratios and estimated calendar
year 1997 and 1998 FFO multiples for the Old Patriot REIT Selected Companies
were: (i) debt to capitalization ratios: 7.7% to 42.3% (with an average of
20.3% and a weighted average of 19.8%); (ii) estimated calendar 1997 dividend
payout ratios: 56.1% to 82.4% (with an average of 68.5% and a weighted average
of 64.3%); and (iii) estimated calendar 1997 and 1998 FFO multiples: 7.7x to
13.7x (with an average of 10.0x and a weighted average of 11.2x) and 7.1x to
11.3x (with an average of 8.8x and a weighted average of 9.7x), respectively.
The debt to capitalization ratio, estimated calendar 1997 dividend payout
ratio and estimated calendar 1997 and 1998 FFO multiples for Old Patriot REIT
were 25.6%, 59.0%, 12.5x and 10.6x, respectively.
Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney reviewed, among other things, the purchase
price and implied transaction multiples paid or proposed to be paid in the
following selected transactions in the lodging industry (acquiror/target):
Hilton Hotels Corporation/ITT; Marriott International Corp./Renaissance
Hotels, Inc.; Extended Stay America/Studio Plus Hotels, Inc.; Bristol Hotel
Company/Certain U.S. assets of Holiday Inn; Interstate Hotels Company/Trust
Leasing Inc.; Doubletree Corporation/Red Lion Hotels, Inc.; Doubletree
Corporation/RFS, Inc.; TRT Holdings Inc./Omni Hotels Group; FelCor Suite
Hotels Inc./Crown Sterling Suites; The Hampstead Group, Inc./Harvey
Hotels/United Inns, Inc.; and Saudi Prince Al-Waleed/Four Seasons Hotels, Inc.
(collectively, the "Smith Barney Selected Transactions"). Smith Barney
compared purchase prices as multiples of, among other things, latest 12 months
and one year forward EBITDA. All multiples were based on publicly available
information at the time of announcement of such transactions. Applying a range
of multiples for the Smith Barney Selected Transactions of latest 12 months
and one year forward net income and latest 12 months and one year forward
EBITDA of 13.3x to 35.2x, 12.3x to 32.7x, 7.5x to 18.6x and 7.0x to 15.2x,
respectively, to corresponding financial data for Wyndham resulted in an
equity reference range for Wyndham of approximately $10.17 to $28.63 per
share, as compared to the equity value implied by the Merger Consideration of
approximately $30.53 per share based on a closing stock price of Old Patriot
REIT Common Stock on April 11, 1997.
No company, transaction or business used in the "Selected Company Analysis"
or "Selected Merger and Acquisition Transactions Analysis" as a comparison is
identical to Wyndham, Old Patriot REIT or the Merger. Accordingly, an analysis
of the results of the foregoing is not entirely mathematical; rather, it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect
the acquisition, public trading or other values of the Selected Companies, the
Smith Barney Selected Transactions or the business segment, company or
transaction to which they are being compared.
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Discounted Cash Flow Analysis. Smith Barney performed a discounted cash flow
analysis of the projected free cash flow of Wyndham for fiscal years 1997
through 2001, based on internal estimates of the management of Wyndham. The
stand-alone discounted cash flow analysis of Wyndham was determined by
(i) adding (x) the present value of projected cash flows over the five-year
period from 1997 to 2001 and (y) the present value of the estimated terminal
value of Wyndham in year 2001 and (ii) subtracting the current net debt of
Wyndham. The range of estimated terminal values for Wyndham at the end of the
five-year period was calculated by applying terminal multiples ranging from
9.0x to 11.0x to the projected 2002 EBITDA of Wyndham, representing the
estimated value of Wyndham beyond the year 2001, with particular focus on a
terminal multiple range of 9.5x to 10.5x. The cash flows and terminal values
of Wyndham were discounted to present value using discount rates ranging from
12.5% to 14.5%. Utilizing such discount rates and a terminal value multiple
range of 9.5x to 10.5x, this analysis resulted in an equity reference range
for Wyndham of approximately $22.83 to $28.87 per share, as compared to the
equity value implied by the Merger Consideration of approximately $30.53 per
share based on a closing stock price of Old Patriot REIT Common Stock on
April 11, 1997.
Contribution Analysis. Smith Barney analyzed the respective contributions of
Wyndham, Old Patriot REIT and the Crow Assets to the estimated EBITDA (taking
into account both existing assets and certain identified acquisitions) of the
combined company for fiscal years 1997 through 1999, based on internal
estimates of the managements of Wyndham and Old Patriot REIT. This analysis
indicated that (i) in fiscal 1997, Wyndham, Old Patriot REIT and the Crow
Assets would contribute approximately 28.0%, 53.9% and 18.1%, respectively, of
EBITDA (with existing assets) and approximately 26.4%, 60.9% and 12.8%,
respectively, of EBITDA (with certain identified acquisitions), of the
combined company; (ii) in fiscal year 1998, Wyndham, Old Patriot REIT and the
Crow Assets would contribute approximately 33.0%, 50.6% and 16.4%,
respectively, of EBITDA (with existing assets) and approximately 28.6%, 60.4%
and 11.0%, respectively, of EBITDA (with certain identified acquisitions), of
the combined company; and (iii) in fiscal year 1999, Wyndham, Old Patriot REIT
and the Crow Assets would contribute approximately 34.5%, 49.4% and 16.1%,
respectively, of EBITDA (with existing assets), and approximately 31.0%, 58.3%
and 10.7%, respectively, of EBITDA (with certain identified acquisitions), of
the combined company. Based on the Exchange Ratio, Wyndham, Old Patriot REIT
and the Crow Assets would constitute approximately 61.5%, 28.2% and 10.3%,
respectively, of the enterprise value of the combined company (with existing
assets) and approximately 67.9%, 24.4% and 7.3%, respectively, of the
enterprise value of the combined company (with certain identified
acquisitions). Smith Barney also analyzed the respective contributions of
Wyndham and Old Patriot REIT to the estimated FFO of the combined company for
fiscal years 1997 through 1999, based on internal estimates of the managements
of Wyndham and Old Patriot REIT. This analysis indicated that (i) in fiscal
year 1997, Wyndham and Old Patriot REIT would contribute approximately 18.4%
and 64.8%, respectively, of the FFO of the combined company; (ii) in fiscal
year 1998, Wyndham and Old Patriot REIT would contribute approximately 21.7%
and 64.6%, respectively, of the FFO of the combined company; and (iii) in
fiscal year 1999, Wyndham and Old Patriot REIT would contribute approximately
23.9% and 63.0%, respectively, of the FFO of the combined company. Based on
the Merger Consideration, current stockholders of Wyndham and Patriot REIT
would own approximately 29.1% and 65.6%, respectively, of the equity value of
the combined company upon consummation of the Merger.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma effects
resulting from the Merger, including, among other things, the impact of the
Merger on the estimated FFO of the combined company in fiscal years 1997 and
1998 based both on estimates of selected investment banking firms and internal
estimates of the managements of Wyndham and Old Patriot REIT, after giving
effect to certain cost adjustments and assuming certain cost savings and other
potential synergies (excluding potential cost savings that may be attributable
to brand conversion opportunities) anticipated by the management of Wyndham to
result from the Merger were achieved. This analysis included a comparison of
both unadjusted FFO (pre-tax income plus depreciation relating to owned real
estate) and unadjusted FFO (pre-tax income plus real estate depreciation,
brand name amortization and goodwill amortization) under three scenarios: (i)
a scenario which assumed that less than all of Old Patriot REIT's then planned
acquisitions were effected (the "Base Case"), (ii) a scenario which assumed
that all of Old Patriot REIT's then planned acquisitions were effected (the
"Full Acquisition Case"), and (iii) a scenario which assumed that all of Old
Patriot REIT's then planned acquisitions were effected and that the Crow
Assets were
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not acquired in connection with the Merger (the "Non-Crow Assets Case"). The
results of the pro forma merger analysis suggested that the Merger could be,
in the Base Case and Full Acquisition Case, dilutive to the adjusted and non-
adjusted FFO of the combined company in fiscal year 1997 (except, in the Base
Case, relative to internal estimates as to adjusted FFO) and accretive in
fiscal year 1998 (except, in the Full Acquisition Case, relative to the
estimates of selected investment banking firms as to unadjusted FFO) and, in
the Non-Crow Assets Case, dilutive in fiscal years 1997 and 1998. The actual
results achieved by the combined company may vary from projected results and
the variations may be material.
Exchange Ratio Analysis. Smith Barney compared the Exchange Ratio with the
historical ratio of the daily closing prices of Wyndham Common Stock and Old
Patriot REIT Common Stock during the five-day and 30-day periods preceding
public announcement of the Merger and the average historical ratio of such
daily closing prices from January 31, 1997 to April 11, 1997. The exchange
ratios of the daily closing prices of one share of Wyndham Common Stock to one
share of Old Patriot REIT Common Stock during the five-day and 30-day periods
preceding public announcement of the Merger were 0.6746 and 0.6347,
respectively, and the average exchange ratio from January 31, 1997 to April
11, 1997 was 0.6160, as compared to the Exchange Ratio of 0.7120.
Other Factors and Comparative Analyses. In rendering its opinion, Smith
Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i)
historical and projected financial results of Wyndham and Old Patriot REIT;
(ii) the history of trading prices and volume for Wyndham Common Stock and Old
Patriot REIT Common Stock and the relationship between movements of such
Common Stock, movements of the common stock of various lodging companies and
movements in the S&P 500 Index; (iv) selected published analysts' reports on
Wyndham and Old Patriot REIT, including analysts' earnings estimates with
respect to Wyndham and Old Patriot REIT; and (v) the pro forma ownership of
the combined company.
Pursuant to the terms of Smith Barney's engagement, Wyndham has agreed to
pay Smith Barney for its services in connection with the Merger an aggregate
financial advisory fee based on a percentage of the total consideration
(including liabilities assumed) payable in connection with the Merger. The fee
payable to Smith Barney is currently estimated to be approximately $4.9
million. Wyndham has also agreed to reimburse Smith Barney for travel and
other reasonable out-of-pocket expenses incurred by Smith Barney in performing
its services, including the reasonable fees and expenses of its legal counsel,
and to indemnify Smith Barney and related persons against certain liabilities,
including liabilities under the federal securities laws, arising out of Smith
Barney's engagement.
Smith Barney has advised Wyndham that, in the ordinary course of business,
Smith Barney and its affiliates may actively trade or hold the securities of
Wyndham and Patriot REIT for their own account or for the account of customers
and, accordingly, may at any time hold a long or short position in such
securities. Smith Barney has in the past provided investment banking and its
financial advisory services to Wyndham unrelated to the proposed Merger, for
which services Smith Barney has received compensation. In addition, Smith
Barney and its affiliates (including Travelers Group Inc. and its affiliates)
may maintain relationships with Wyndham and Patriot REIT.
Smith Barney is an internationally recognized investment banking firm and
was selected by Wyndham based on its experience, expertise and familiarity
with Wyndham and its business. Smith Barney regularly engages in the valuation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for estate, corporate and other purposes.
Merrill Lynch
On April 13, 1997 Merrill Lynch delivered an oral opinion, which opinion was
confirmed in a written opinion dated April 14, 1997 (the "Merrill Lynch
Opinion"), to the Wyndham Special Committee to the effect
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that, as of such dates, and based upon the assumptions made, matters
considered and limits of review set forth in the Merrill Lynch Opinion, the
Merger Consideration to be received by the holders of Wyndham Common Stock
(other than CF Securities) in the Merger was fair to such stockholders from a
financial point of view.
A COPY OF THE MERRILL LYNCH OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE OF REVIEW UNDERTAKEN
BY MERRILL LYNCH, IS ATTACHED AS ANNEX J TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. HOLDERS OF WYNDHAM COMMON STOCK ARE URGED TO READ SUCH
OPINION IN ITS ENTIRETY. THE MERRILL LYNCH OPINION WAS INTENDED FOR THE USE
AND BENEFIT OF THE WYNDHAM SPECIAL COMMITTEE, WAS DIRECTED ONLY TO THE
FAIRNESS OF THE MERGER CONSIDERATION TO THE HOLDERS OF WYNDHAM COMMON STOCK
(OTHER THAN CF SECURITIES) FROM A FINANCIAL POINT OF VIEW, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER
SHOULD VOTE WITH RESPECT TO THE MERGER PROPOSAL OR ANY TRANSACTION RELATED
THERETO OR TO WHETHER ANY STOCKHOLDER SHOULD ELECT TO RECEIVE THE CASH
CONSIDERATION OR THE PAIRED SHARE CONSIDERATION. THE SUMMARY OF THE MERRILL
LYNCH OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at the Merrill Lynch Opinion, Merrill Lynch among other things:
(i) reviewed certain publicly available business and financial information
relating to Wyndham and Old Patriot REIT which Merrill Lynch deemed to be
relevant; (ii) reviewed the terms and conditions of the Agreement and Plan of
Merger (the "Cal Jockey Agreement"), dated as of February 24, 1997, among Old
Patriot REIT, the Patriot REIT Partnership, Cal Jockey and Bay Meadows, and
reviewed certain publicly available business and financial information
relating to Cal Jockey and Bay Meadows; (iii) reviewed certain information,
including financial forecasts, relating to the business, earnings, cash flow,
assets, liabilities and prospects of Wyndham and Old Patriot REIT (including,
in the case of Old Patriot REIT, certain information and financial forecasts
prepared by management of Old Patriot REIT relating to Cal Jockey and Bay
Meadows, as well as certain other companies which Old Patriot REIT may seek to
acquire or in which Old Patriot REIT may seek to make an investment, including
the Bellemead Development unit of Chubb Corp. (collectively, the "Contemplated
Transactions"), and certain information and financial forecasts prepared by
the Crow Family Entities relating to the Crow Assets), furnished to Merrill
Lynch by Wyndham and Old Patriot REIT, respectively; (iv) conducted
discussions with members of senior management of Wyndham concerning Wyndham's
businesses, future acquisition plans and strategies, and prospects before and
after giving effect to the Merger; (v) conducted discussions with members of
senior management of Old Patriot REIT concerning Old Patriot REIT's
businesses, future acquisition plans and strategies (including plans and
strategies with respect to the Contemplated Transactions), and prospects
before and after giving effect to the Merger; (vi) conducted discussions with
certain representatives of the Crow Family Entities concerning the Crow
Assets; (vii) reviewed the historical market prices and valuation multiples
for Wyndham Common Stock, Old Patriot REIT Common Stock, and the common stock
of Cal Jockey, par value $0.1 per share which were paired and trading together
with the common stock of Bay Meadows, par value $0.1 per share, and compared
them with those of certain publicly traded companies which Merrill Lynch
deemed to be relevant; (viii) reviewed the results of operations of Wyndham
and Old Patriot REIT and compared them with those of certain companies which
Merrill Lynch deemed to be relevant; (ix) compared the proposed financial
terms of the Merger with the financial terms of certain other transactions
which Merrill Lynch deemed to be relevant; (x) reviewed the potential pro
forma impact of the Merger; (xi) reviewed the April Merger Agreement, the
Omnibus Purchase and Sale Agreement, the Stock Purchase Agreement, and the
Proxy Agreement; and (xii) reviewed such other financial studies and analyses
and took into account such other matters as Merrill Lynch deemed necessary,
including Merrill Lynch's assessment of general economic, market and monetary
conditions.
In preparing the Merrill Lynch Opinion, Merrill Lynch neither received nor
reviewed any financial projections or other non-public information prepared by
Cal Jockey, Bay Meadows or of any of the companies
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which were the subject of any of the Contemplated Transactions pertaining to
the future prospects of Cal Jockey, Bay Meadows or any of such companies,
respectively.
In preparing the Merrill Lynch Opinion, Merrill Lynch assumed, with the
Wyndham Special Committee's consent, that the Cal Jockey Merger would be
consummated on the terms contained in the Cal Jockey Agreement.
In preparing the Merrill Lynch Opinion, Merrill Lynch also assumed and
relied on the accuracy and completeness of all information supplied or
otherwise made available to Merrill Lynch or publicly available or discussed
with or reviewed by or for Merrill Lynch, and Merrill Lynch did not assume any
responsibility for independently verifying such information or undertake an
independent evaluation or appraisal of any of the assets or liabilities of
Wyndham, Old Patriot REIT, Cal Jockey, Bay Meadows, the Crow Assets or of any
of the companies which were the subject of any of the Contemplated
Transactions, and was not furnished with any such evaluation or appraisal. In
addition, Merrill Lynch did not conduct any physical inspection of the
properties or facilities of Wyndham, Old Patriot REIT, Cal Jockey, Bay
Meadows, the Crow Assets or of any of the companies which were the subject of
any of the Contemplated Transactions. With respect to the financial forecast
information furnished to or discussed with Merrill Lynch by Wyndham or Old
Patriot REIT, Merrill Lynch assumed that they had been reasonably prepared and
reflected the best currently available estimates and judgment of Wyndham's or
Old Patriot REIT's management as to the expected future financial performance
of Wyndham or Old Patriot REIT, as the case may be. With respect to the
financial forecast information furnished to or discussed with Merrill Lynch by
certain representatives of the Crow Family Entities, Merrill Lynch assumed
that they had been reasonably prepared and reflected the best currently
available estimates and judgment of such representatives as to the expected
future financial performance of the Crow Assets. Merrill Lynch further assumed
with the Wyndham Special Committee's consent that the Merger would qualify as
a tax-free reorganization for U.S. federal income tax purposes, Patriot REIT
would qualify to be treated as a real estate investment trust within the
meaning of the Internal Revenue Code of 1986, as amended, before and after
giving effect to the Merger, and the pairing of the Patriot REIT Common Stock
and the Patriot Operating Company Common Stock would be permitted pursuant to
Section 136(c) of the Deficit Reduction Act of 1984, before and after giving
effect to the Merger. As the Wyndham Special Committee was advised, it had
been publicly reported in the financial press that Old Patriot REIT was
exploring a possible business combination or other transaction involving
Carnival Hotels & Casinos ("Carnival"). In that regard, the financial forecast
information furnished to Merrill Lynch by Old Patriot REIT did not include
financial forecasts with respect to Carnival, and accordingly, with the
Wyndham Special Committee's consent, Merrill Lynch did not review or consider
any such transaction in arriving at the Merrill Lynch Opinion. The Merrill
Lynch Opinion did not address the merits of the underlying decision by Wyndham
to engage in the Merger. The Merrill Lynch Opinion was necessarily based upon
market, economic and other conditions as they existed and could be evaluated
as of the date of the Merrill Lynch Opinion. The Merrill Lynch Opinion does
not address the merits of the underlying decision by Wyndham to enter into the
Merger.
Merrill Lynch assumed that in the course of obtaining the necessary
regulatory or other consents and approvals (contractual or otherwise) for the
Cal Jockey Merger and the Merger, no restrictions would be imposed that would
have a material adverse effect on the contemplated benefits of the Cal Jockey
Merger or the Merger.
In connection with the preparation of the Merrill Lynch Opinion, Merrill
Lynch was not authorized by Wyndham or the Wyndham Special Committee to
solicit, nor did Merrill Lynch solicit, third-party indications of interest
for the acquisition of all or any part of Wyndham. In addition, Merrill Lynch
expressed no opinion as to the prices at which the Wyndham Common Stock or the
Paired Shares would trade following the announcement of the Merger nor the
prices at which the Paired Shares will trade following the consummation of the
Merger.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at the Merrill Lynch Opinion.
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Wyndham
Historical Trading Analysis. Merrill Lynch compared the per share daily
closing market prices of Wyndham Common Stock, the S&P 500, and an index
composed of the following companies: La Quinta Inns Inc., Promus Hotel
Corporation, Doubletree Hospitality Corporation, Bristol Hotel Company, Red
Roofs Inns and Capstar Hotels Inc. (collectively, the "Wyndham Comparable
Companies") for the period beginning May 20, 1996 and ending April 11, 1997.
Comparable Public Companies Analysis. Using publicly available information,
Merrill Lynch compared certain financial and operating information and ratios
(described below) for Wyndham with corresponding financial and operating
information and ratios for the Wyndham Comparable Companies excluding Bristol
Hotel Company.
Merrill Lynch compared (i) the net debt (defined as long term debt plus
short term debt less cash) to enterprise value (defined as the sum of the
market value of the common equity, the liquidation value of the preferred
stock, minority interest and net debt) ratio, which ranged from 13.0% to 51.0%
(with a median of 31.1% and a mean of 32.5%) compared with 12.8% for Wyndham;
(ii) enterprise value to 1996, 1997 and 1998 earnings before interest, taxes,
depreciation and amortization ("EBITDA"), respectively (in each case based on
information from various third-party research reports), which ranged from 7.7x
to 12.3x for 1996 (with a median of 11.3x and a mean of 10.9x) compared to
17.3x for Wyndham, from 6.2x to 11.3x for estimated 1997 (with a median of
8.7x and a mean of 8.6x) compared to 12.8x for Wyndham, from 5.3x to 9.7x for
estimated 1998 (with a median of 7.1x and a mean of 7.1x) compared to 10.0x
for Wyndham; (iii) earnings per share multiples for 1997 and 1998, (in each
case based on information provided by First Call Consensus Estimates ("First
Call")) which ranged from 12.7x to 21.7x for estimated 1997 (with a median of
20.3x and a mean of 18.9x), compared to 34.4x for Wyndham, and from 11.1x to
17.6x for estimated 1998 (with a median of 15.9x and a mean of 15.3x) compared
to 26.2x for Wyndham; (iv) 5-year estimated growth rates (based on information
provided by Institutional Brokers Estimate System ("IBES")), which ranged from
17.0% to 27.0% (with a median of 25.0% and a mean of 23.7%) compared to 30.0%
for Wyndham; and (v) the 1997 price earnings multiple expressed as a multiple
of 5-year estimated growth which ranged from 0.72x to 0.88x (with a median of
0.76x and a mean of 0.80x) compared to 1.15x for Wyndham.
Discounted Cash Flow Analysis. Merrill Lynch performed a discounted cash
flow analysis ("DCF") of Wyndham using Wyndham's management's projections and
assumptions for 1997 through 2001 (the "Growth Case") and projections for the
same period based upon more conservative growth assumptions provided by
Wyndham's management (the "Sensitivity Case"). The Sensitivity Case assumed
hotel acquisitions that were $40 million lower than the Growth Case for fiscal
years 1997 through 1999, and $25 million lower than the Growth Case for fiscal
year 2000 and investments in new management contracts that were $5.8 million
lower than the Growth Case for fiscal years 1997 through 1999 and $3.3 million
lower thereafter for fiscal years 2000 and 2001. The DCF for Wyndham was
estimated using discount rates ranging from 11.0% to 13.0% based upon a
weighted average cost of capital analysis for Wyndham and the Wyndham
Comparable Companies, and was comprised of the sum of the present values of
(i) the projected free cash flows for the fiscal years 1997 to 2001, (ii) the
fiscal year 2001 terminal value based upon a range of 2001 EBIDTA terminal
multiples of 9.5x to 10.5x minus (iii) the net debt as of December 1996.
Comparable Acquisition Analysis. Merrill Lynch reviewed certain publicly
available information regarding 10 selected business combinations since July
1990 (the "Comparable Acquisition Transactions"). The Comparable Acquisition
Transactions and the month the transactions were announced were as follows:
Bristol Hotel Company's acquisition of Holiday Inn-North American Hotels
(December 1996); Marriott International Corp.'s acquisition of Renaissance
Hotels, Inc. (February 1997); Doubletree Corporation's acquisition of Red Lion
Hotels Inc. (September 1996); Granada's Acquisition of Forte PLC (January
1996); HFS, Inc.'s acquisition of Forte PLC--US Travelodge (January 1996);
Kingdom Investment Inc.'s investment in Four Season Hotel Inc. (September
1994); Morgan Stanley & Co.'s acquisition of Red Roofs Inns Inc. (November
1993); HFS, Inc.'s
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acquisition of Super 8 Motels, Inc. (February 1993); HFS, Inc.'s acquisition
of Days Inn of America (May 1991) and Accor S.A.'s acquisition of Hotel 6-L.P.
(July 1990).
Merrill Lynch compared the "offer value" (defined as the offer price per
share multiplied by the sum of the number of shares outstanding and the number
of options outstanding) of each such transaction as a multiple of then
publicly available latest twelve months ("LTM") net income to common (the "LTM
Net Income Multiple") and latest fiscal quarter ("LFQ") book value of common
equity (the "LFQ Common Equity Multiple"). The ranges of LTM Net Income
Multiples and LFQ Common Equity Multiples were as follows: (i) the LTM Net
Income Multiples ranged from 11.0x to 45.7x (with a median of 25.2x and a mean
of 26.7x) compared to an implied 47.5x to be received in the Merger; (ii) the
LFQ Common Equity Multiples ranged from 2.16x to 8.40x (with a median of 5.51x
and a mean of 5.37x) compared to an implied 8.57x to be received in the
Merger.
Merrill Lynch also compared the "transaction value" (defined as the sum of
the offer value, the preferred equity at liquidation value, the short term
debt, the long term debt and minority interest less cash, marketable
securities and option proceeds) as a multiple of LTM EBITDA, earnings before
interest and taxes ("EBIT"), and sales. The ranges of the transaction value as
a multiple of LTM EBITDA, EBIT and Sales were as follows: (i) transaction
value to LTM EBITDA which ranged from 6.5x to 14.7x (with a median of 11.0x
and a mean of 10.5x) compared to an implied multiple of 19.1x to be received
in the Merger; (ii) transaction value to LTM EBIT which ranged from 8.6x to
28.1x (with a median of 14.4x and a mean of 15.7x) compared to an implied
multiple of 24.2x to be received in the Merger; and (iii) transaction value to
LTM Sales which ranged from 1.84x to 7.50x (with a median of 2.39x and a mean
of 3.23x) compared to an implied multiple of 4.51x to be received in the
Merger.
Old Patriot REIT
Historical Trading Analysis. Merrill Lynch compared the per share weekly
closing market prices of Old Patriot REIT Common Stock, the S&P 500 Index and
an index composed of the following companies: American General Hospitality,
Starwood Lodging Corporation and Starwood Lodging Trust, Hospitality
Properties Trust and FelCor Suites Hotels, Inc. for the period beginning
January 1, 1996 and ending April 11, 1997.
Comparable Public Companies Analysis. Using publicly available information,
Merrill Lynch compared certain financial and operating information and ratios
(described below) for Old Patriot REIT with corresponding financial and
operating information and ratios for (i) a group of publicly traded companies
that Merrill Lynch deemed to be similar to Old Patriot REIT's business (the
"Old Patriot REIT Comparable Companies") and (ii) a subcategory of that group
(the "Selected Old Patriot REIT Comparable Companies"). The companies included
in the Old Patriot REIT Comparable Companies were Host Marriot Corporation,
Starwood Lodging Corporation, FelCor Suites Hotels, Inc., American General
Hospitality, and Hospitality Property Trust. The companies included in the
Selected Old Patriot REIT Comparable Companies were Host Marriot Corporation,
Starwood Lodging Corporation and Starwood Lodging Trust, and FelCor Suites
Hotels, Inc.
For the Old Patriot REIT Comparable Companies, Merrill Lynch compared (i)
the net debt to enterprise value ratio, which ranged from 4.4% to 33.8% (with
a median of 15.1% and a mean of 15.9%) compared with 15.6% for Old Patriot
REIT; (ii) enterprise value to 1996, 1997 and 1998 EBITDA, respectively (in
each case based on various third-party research reports), which ranged from
11.8x to 23.4x for 1996 (with a median of 16.8x and a mean of 16.5x) compared
to 10.6x for Old Patriot REIT, from 8.0x to 14.5x for estimated 1997 (with a
median of 9.2x and a mean of 10.3x) compared to 9.0x for Old Patriot REIT, and
from 5.3x to 11.9x for estimated 1998 (with a median of 7.7x and a mean of
8.0x) compared to 5.9x for Old Patriot REIT; (iii) equity market value as a
multiple of funds from operations ("FFO") for years 1997 and 1998,
respectively (in each case based on information provided by First Call), which
ranged from 9.2x to 13.7x for estimated 1997 (with a median of 10.7x and a
mean of 10.9x) compared to 12.5x for Old Patriot REIT, and from 7.9x to 11.3x
for estimated 1998 (with a median of 9.3x and a mean of 9.4x) compared to
10.6x for Old Patriot REIT; and (iv) 5-
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year estimated growth rates (based on research by Merrill Lynch), which ranged
from 7.0% to 25.0% (with a median of 12.5% and a mean of 14.3%) compared to
12.0% for Old Patriot REIT.
For the Selected Old Patriot REIT Comparable Companies, Merrill Lynch
compared (i) the net debt to enterprise value ratio, which ranged from 15.1%
to 33.8% (with a median of 16.8% and a mean of 21.9%) compared with 15.6% for
Old Patriot REIT; (ii) enterprise value to 1996, 1997 and 1998 EBITDA,
respectively (in each case based on various third-party research reports),
which ranged from 13.0x to 23.4x for 1996 (with a median of 16.8x and a mean
of 17.7x) compared to 10.6x for Old Patriot REIT, from 9.2x to 14.5 for
estimated 1997 (with a median of 11.2x and a mean of 11.6x) compared to 9.0x
for Old Patriot REIT, and from 7.7x to 11.9x for estimated 1998 (with a median
of 9.1x and a mean of 9.5x) compared to 5.9x for Old Patriot REIT; (iii)
equity market value as a multiple of FFO for years 1997 and 1998, respectively
(in each case based on information provided by First Call), which ranged from
10.0x to 13.7x for estimated 1997 (with a median of 11.2x and a mean of 11.6x)
compared to 12.5x for Old Patriot REIT, and from 7.9x to 11.3x for estimated
1998 (with a median of 9.8x and a mean of 9.7x) compared to 10.6x for Old
Patriot REIT; and (iv) 5-year estimated growth rates (based on research by
Merrill Lynch), which ranged from 10.0% to 25.0% (with a median of 15.0% and a
mean of 16.7%) compared to 12.0% for Old Patriot REIT.
Discounted Cash Flow Analysis. Merrill Lynch performed a DCF analysis for
Old Patriot REIT using Old Patriot REIT's management's projections and
assumptions for fiscal years 1997 through 2001.
The DCF was calculated assuming equity discount rates ranging from 15.0% to
17.0% for Old Patriot REIT based upon a cost of equity capital analysis for
Old Patriot REIT and the Old Patriot REIT Comparable Companies and was
comprised of the sum of the present values of (i) the dividends per share of
Old Patriot REIT Common Stock for the fiscal years of 1997 to 2001 and (ii)
the fiscal year 2001 equity terminal value per share based on 2001 terminal
multiples of FFO per share ranging from 12.0x to 14.0x.
Implied Exchange Ratio. Based upon the estimated valuation ranges of Wyndham
and Old Patriot REIT, Merrill Lynch calculated an implied exchange ratio of a
share of Old Patriot REIT Common Stock to a share of Wyndham Common Stock
(excluding the cash component of the Merger Consideration for purposes of such
analysis). By comparing the highest implied values of Wyndham to the implied
lowest values of Old Patriot REIT, and vice-versa, the indicated results were
as follows: (i) Wyndham stand-alone DCF for the Growth Case to Old Patriot
REIT stand-alone DCF yielded an implied exchange ratio of 0.9772 to 1.5194;
(ii) Wyndham stand-alone DCF for the Sensitivity Case to Old Patriot REIT
stand-alone DCF, yielded an implied exchange ratio of 0.8382 to 1.2828.
Pro Forma Analysis. In addition, Merrill Lynch analyzed certain pro forma
effects resulting from the Merger, including the potential impact of the
Merger on Old Patriot REIT's projected FFO ("Case 1") and modified FFO
(defined as FFO plus amortization of transaction goodwill and certain
intangibles) ("Case 2"). In Case 1 and Case 2, the Merger would be accretive
to holders of Wyndham Common Stock in the years 1998 through 2000 for all
possible exchange ratios under the collar mechanism.
Relative Contribution Analysis. Merrill Lynch compared the relative
ownership of holders of Wyndham Common Stock with respect to the combined
entity from the proposed transaction of approximately 25.3%, 22.2% and 20.7%,
respectively, (adjusted to reflect projected equity issuances by Old Patriot
REIT as provided by Old Patriot REIT's management) for the years 1997, 1998
and 1999, respectively, to the relative contribution by Wyndham to the FFO of
the combined entity. Based on the assumptions underlying the Growth Case, this
analysis indicated that for the years 1997, 1998 and 1999, respectively,
Wyndham would contribute 19.0%, 17.0% and 17.3% of the FFO of the combined
entity, respectively.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at the Merrill Lynch
Opinion. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial analysis or summary description. Merrill Lynch believes
that its analysis must be considered as a whole and that selecting portions of
its analyses and of the factors considered by it, without
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considering all such factors and analyses, could create a misleading view of
the processes underlying its opinion. Merrill Lynch did not assign relative
weights to any of its analyses in preparing its opinion. The matters
considered by Merrill Lynch in its analyses were based on numerous
macroeconomic, operating and financial assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond Wyndham's and Old Patriot REIT's control and involve the
application of complex methodologies and educated judgment. Any estimates
incorporated in the analyses performed by Merrill Lynch are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less favorable than such estimates. Estimated values do
not purport to be appraisals and do not necessarily reflect the prices at
which businesses or companies may be sold in the future, and such estimates
are inherently subject to uncertainty.
The Wyndham Special Committee selected Merrill Lynch to act as its financial
advisor on the basis of Merrill Lynch's reputation as an internationally
recognized investment banking firm with substantial expertise in transactions
similar to the Merger and because it is familiar with Wyndham and its
business. As part of its investment banking business, Merrill Lynch is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions.
Pursuant to a letter agreement, dated March 7, 1997, Wyndham has agreed to
pay Merrill Lynch (i) a retainer of $25,000, (ii) a fee of $750,000 upon
delivery of the Merrill Lynch Opinion, (iii) a fee of $500,000, payable upon
consummation of the Merger against which the fee referred to in clause (i)
above will be credited and (iv) an additional fee of $125,000. In addition,
Wyndham has agreed to reimburse Merrill Lynch and certain related parties from
and against certain liabilities, including liabilities under the federal
securities laws, arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory services to
Wyndham and has received fees for rendering such services. In addition,
Merrill Lynch has provided financial advisory and financing services to Old
Patriot REIT and Patriot REIT, including certain services the proceeds of
which may be used in connection with the cash portion of the Merger
Consideration. In that regard, Merrill Lynch acted as co-underwriter of the
July 1997 offering of the Paired Shares. Merrill Lynch has also provided
financial advisory services to the Patriot Companies in connection with the
CHCI Merger. In addition, in the ordinary course of Merrill Lynch's business,
Merrill Lynch may actively trade Wyndham Common Stock and other securities of
Wyndham, as well as the Paired Shares and other securities of Patriot
Operating Company and Patriot REIT, for Merrill Lynch's account and for the
account of Merrill Lynch's customers and, accordingly, may at any time hold a
long or short position in such securities.
INTERESTS OF CERTAIN OFFICERS, DIRECTORS AND STOCKHOLDERS OF WYNDHAM
In considering the recommendation of the Wyndham Board to approve the Merger
Proposal, stockholders of Wyndham should be aware that certain members of
management, the Wyndham Board and certain Wyndham stockholders have certain
interests in, and will receive certain benefits as a consequence of, the
Merger and the Related Transactions and the Crow Assets Acquisition that
involve certain potential conflicts of interest. See "Risk Factors--Conflicts
of Interest of Certain Officers, Directors and Stockholders of Wyndham."
Crow Assets Acquisition. In connection with the Merger, the Patriot REIT
Partnership has entered into the Omnibus Purchase and Sale Agreement, as well
as eleven individual purchase and sale agreements, with the Crow Family
Entities providing for the Patriot REIT Partnership's acquisition of eleven
full-service Wyndham brand hotels. See "The Companies--Surviving Companies--
Crow Assets Acquisition." The Crow Family Entities are owned by certain Crow
Family Members, certain members of Wyndham Senior Management and certain other
persons. The Crow Assets Acquisition is subject to various closing conditions,
including approval of the Merger by the stockholders of Patriot REIT, Patriot
Operating Company and Wyndham (which conditions may be waived by such
parties). The Patriot REIT Partnership has agreed to pay the Crow Family
Entities an aggregate purchase price of approximately $331.7 million in cash,
plus up to $14 million in additional cash consideration if two of the hotels
meet certain cash flow targets. It is estimated that after payment of
outstanding
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indebtedness and other transactional expenses, the Crow Family Entities will
have available for distribution to their Crow Family Member and Wyndham Senior
Management partners aggregate net proceeds from consummation of the Crow
Assets Acquisition of the following amounts (which amounts are exclusive of
any proceeds that may in the future be received from the sale of the Milwaukee
Hotel or other hotels):
<TABLE>
<CAPTION>
CROW FAMILY ENTITY PARTNERS ESTIMATED NET PROCEEDS
- --------------------------- ----------------------
<S> <C>
Crow Family Members (1).................................. $ 64,731,000
James D. Carreker........................................ 1,537,000
Leslie V. Bentley........................................ 462,000
Eric A. Danziger (2)..................................... 438,000
Stanley M. Koonce........................................ 462,000
Anne L. Raymond.......................................... 108,000
</TABLE>
- --------
(1) Harlan R. Crow, a director of Wyndham, is a Crow Family Member. Susan T.
Groenteman, a director of Wyndham, holds management positions in a number
of entities that are Crow Family Members, but she is not herself a Crow
Family Member.
(2) Mr. Danziger resigned from Wyndham in July 1996.
ISIS 2000 Option Agreement. In connection with the Merger, the owners (the
"ISIS Owners") of ISIS 2000, the entity that provides centralized reservation
services and property management services to Wyndham brand hotels, granted
options (collectively, the "ISIS Options") to Patriot REIT Partnership to
purchase their ownership interests in ISIS 2000. The ISIS Owners consist of
certain Crow Family Members and certain members of Wyndham Senior Management.
The ISIS Options become exercisable upon the effectiveness of the Merger and
expire on April 30, 1999. The ISIS Options terminate on such date as the
Merger Agreement is terminated pursuant to its terms. The exercise price of
the ISIS Options is equal to an amount that would yield an internal rate of
return equal to 12.5% on total capital contributions by the ISIS Owners as of
the date of exercise.
Employment Agreements. Patriot REIT has entered into Employment Agreements
with each of Messrs. Carreker, Bentley and Koonce and Ms. Raymond to become
effective upon consummation of the Merger. The employment agreements of
Messrs. Carreker, Bentley and Koonce will be assigned to Wyndham
International. Mr. Carreker's agreement provides for an initial term of five
years and an additional two-year renewal, and the agreements of Messrs.
Bentley and Koonce and Ms. Raymond provide for an initial term of three years,
with an additional two-year renewal term; provided that each of Messrs.
Bentley and Koonce and Ms. Raymond have the right to terminate their
respective employment agreements during a 30-day period beginning six months
after the date of consummation of the Merger. Under the agreements, commencing
January 1, 1998, Messrs. Carreker, Bentley and Koonce and Ms. Raymond will
receive annual base salaries of $500,000, $250,000, $250,000, and $250,000,
respectively (Ms. Raymond may receive an initial annual base salary of
$275,000 under certain circumstances), with the amounts of such base annual
salaries to thereafter be set by the appropriate Board of Directors. Each such
executive will also be eligible to receive cash incentive compensation in
amounts determined by the appropriate compensation committee up to 100%, 80%,
80% and 80% of the annual base salary of the respective executive. The
employer of each executive is also obligated to pay premiums on life insurance
policies to be maintained on the life of each executive, and each executive is
entitled to participate in all employee benefit plans in effect. Each
agreement provides for a severance payment if the agreement is terminated
under certain circumstances. In such circumstances, the executive is entitled
to a severance payment in accordance with the employer's then current
severance policies, provided that, at a minimum, Mr. Carreker shall be
entitled to a minimum severance payment equal to three times the sum of his
average annual base salary and average annual incentive compensation, while
Messrs. Bentley and Koonce and Ms. Raymond shall be entitled to a minimum
severance payment of (i) one and one-half times the sum of the executive's
average annual base salary and annual incentive compensation or (ii) if
termination of employment occurs within the 18-month period following
consummation of the Merger, the sum of the executive's average annual base
salary and annual incentive compensation payable for the remaining length of
the initial term of the agreement. If an executive's employment terminates for
certain reasons within a period of 18 months after the occurrence of a "Change
in
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Control" (as defined in the respective employment agreements), such agreement
also provides for a payment equal to the severance payments referred to above,
subject to an additional gross up payment to cover any excise tax imposed upon
any "excess parachute payment." Messrs. Carreker, Bentley and Koonce and Ms.
Raymond have agreed not to compete with Patriot REIT or Wyndham International
during the terms of their respective agreements and, in the case of Mr.
Carreker, for three years thereafter, and, in the case of Messrs. Bentley and
Koonce and Ms. Raymond, for a period of 18 months thereafter (or such longer
period for which severance is payable). The foregoing noncompetition covenants
do not, however, prohibit any such executive from accepting a position with a
Crow Family Member after his or her termination of employment, so long as such
Crow Family Member does not directly or indirectly form a hospitality
operating company (as opposed to making individual investments in hospitality
properties).
The Patriot Companies anticipate that they will enter into employment
agreements with a number of additional key Wyndham executives. The terms of
such employment agreements are subject to negotiation, although the form of
agreement will be similar to the employment agreements described above.
Registration Rights Agreement. Patriot REIT and Patriot Operating Company
have agreed to enter into the Registration Rights Agreement, effective upon
consummation of the Merger, with CF Securities, Bedrock (in which Messrs.
Daniel Decker and Robert Whitman, directors of Wyndham, have ownership
interests), Messrs. Carreker, Bentley and Koonce and Ms. Raymond. Pursuant to
the Registration Rights Agreement, Patriot REIT and Wyndham International will
be required, subject to certain limitations and under certain conditions, to
register for sale to the public the Registrable Securities received by the
Registration Rights Holders pursuant to the Stock Purchase Agreement and the
Merger Agreement. The Registration Rights Agreement will require Patriot REIT
and Wyndham International to maintain a "shelf" registration statement for a
period of four years following the date thereof to permit the resale of the
Registrable Securities either directly by the Registration Rights Holders to
the public or through an underwritten public offering. In addition, the
Registration Rights Agreement will provide that any Registration Rights Holder
may require Patriot REIT and Wyndham International, upon written notice, to
register for sale such Registrable Securities (a "Demand Registration"),
provided that the total amount of Registrable Securities to be included in the
Demand Registration has a market value of at least $20 million and that notice
is not given less than nine months after the effective date of the previous
Demand Registration. If Registrable Securities are going to be registered by
Patriot REIT and Wyndham International pursuant to a Demand Registration,
notice must be provided to the other Registration Rights Holders of
Registrable Securities and permit them to include any and all Registrable
Securities that they hold in the Demand Registration, provided that the amount
of Registrable Securities requested to be registered may be limited by the
underwriters in an underwritten public offering based upon such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration would materially and adversely affect the success
of the offering. Upon notice of a Demand Registration, Patriot REIT and
Wyndham International are required to file a registration statement within 60
days of the date on which such notice is given, although the filing may be
postponed for up to 90 days under certain circumstances. Subject to the
conditions stated or referred to above, the Registration Rights Holders may
request an unlimited number of Demand Registrations.
The Registration Rights Agreement will also provide that, subject to certain
exceptions, in the event that Patriot REIT and Wyndham International propose
to file a registration statement with respect to Registrable Securities, with
the exception of certain other types of registrations, Patriot REIT and
Wyndham International will offer the Registration Rights Holders the
opportunity to register the number of Registrable Securities they request to
include (the "Piggyback Registration"), provided that the amount of
Registrable Securities requested to be registered may be limited by the
underwriters in an underwritten public offering based on such underwriters'
determination that inclusion of the total amount of Registrable Securities
requested for registration would materially and adversely affect the success
of the offering. Patriot REIT and Wyndham International will be required to
pay all of the expenses of registration under the Registration Rights
Agreement, other than underwriting discounts and commissions. See "Risk
Factors--Possible Adverse Effects on Market Price of Paired Shares Arising
from Shares Available for Future Sale."
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The Patriot Companies have registered for sale to the public the Registrable
Securities received by the Registration Rights Holders (including Paired
Shares that are issuable upon conversion of shares of Series A Preferred
Stock) pursuant to the Stock Purchase Agreement and the Merger Agreement in
the Registration Statement relating to this Joint Proxy Statement/Prospectus.
Wyndham Stock Options. Wyndham's Amended and Restated 1996 Long-Term
Incentive Plan (the "Wyndham Plan") provides the Wyndham Board of Directors
with discretion to address at the time of the grant of options thereunder the
disposition of such options in the event of certain transactions in which
Wyndham merges with or into another corporation and is not the surviving
corporation. Each Existing Wyndham Option agreement entered into in connection
with the grant of options under the Wyndham Plan provides that in the event of
a "change of control" transaction, the Existing Wyndham Options become 100%
vested and exercisable in full. The effect of the foregoing provisions in the
Wyndham Plan and the Existing Wyndham Option agreements is that all Existing
Wyndham Options vest and become fully exercisable upon the consummation of the
Merger (other than one option containing different terms and covering 14,577
shares of Wyndham Common Stock).
As further permitted by the Wyndham Plan, at a meeting held on April 13,
1997, the Wyndham Board resolved that all Existing Wyndham Options at the
Effective Time of the Merger shall continue to remain exercisable following
the Merger for a number of Paired Shares to be determined based on the
Exchange Ratio. Similarly, the Merger Agreement provides that each Existing
Wyndham Option shall fully vest and become immediately exercisable in
accordance with its terms for that number of whole Paired Shares equal to the
number of shares of Wyndham Common Stock covered by such option immediately
prior to the Effective Time of the Merger multiplied by the Exchange Ratio.
The exercise price of such options shall be equal to the exercise price per
share of Wyndham Common Stock prior to the Merger divided by the Exchange
Ratio. Accordingly, following the Merger, the number of stock options
exercisable for Paired Shares will be determined by multiplying the number of
Existing Wyndham Options by 1.372 (subject to adjustment, as described under
"The Merger Agreement--The Merger and Subscription") and the exercise price
for such options will be determined by dividing the current exercise price by
1.372 (subject to such adjustment). For additional information on the
treatment of Existing Wyndham Options in the Merger, see "The Merger
Agreement--Exchange of Wyndham Stock Certificates."
As of November 3, 1997, there were Existing Wyndham Options to purchase
1,031,577 shares of Wyndham Common Stock under the Wyndham Plan. Of these
options, 574,100 are held by members of Wyndham Senior Management (Wyndham's
non-employee directors are not eligible to participate in the Wyndham Plan).
In the event that the members of the Wyndham Senior Management exercise all of
the options granted to them, then, based on the $31 1/2 closing price of a
Paired Share on the NYSE on November 3, 1997, the aggregate value (net of the
exercise price) for such options would be approximately $14,217,600, including
$4,572,100, $2,021,800, $2,021,800, $2,021,800 and $943,100 for the options of
Messrs. Carreker, Bentley and Koonce and Mses. Raymond and Moreland,
respectively. The following table sets forth certain other information with
respect to such options:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES PAIRED SHARES
OF WYNDHAM WYNDHAM COMMON FOR WHICH
COMMON STOCK WEIGHTED OPTIONS WILL BE
STOCK SUBJECT AVERAGE EXERCISABLE PAIRED SHARE
TO OPTIONS EXERCISE FOLLOWING WEIGHTED AVERAGE
OPTION HOLDERS PRIOR TO MERGER PRICE MERGER(1) EXERCISE PRICE(1)
-------------- ---------------- -------------- --------------- -----------------
<S> <C> <C> <C> <C>
James D. Carreker....... 183,000 $18.24 251,076 $13.29
Leslie V. Bentley....... 80,000 17.94 109,760 13.08
Anne L. Raymond......... 80,000 17.94 109,760 13.08
Stanley M. Koonce,
Jr. ................... 80,000 17.94 109,760 13.08
Carla S. Moreland....... 37,500 18.07 51,450 13.17
All other executive
officers as a Group
(4 persons)............ 113,600 20.00 155,859 14.58
</TABLE>
- --------
(1) Assumes an Exchange Ratio of 1.372 Paired Shares for each share of Wyndham
Common Stock, which is subject to adjustment as described under "The
Merger Agreement--The Merger and Subscription."
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Wyndham Anatole Partnership Loan. The obligations of Patriot REIT to effect
the Merger and the Related Transactions is conditioned upon, among other
things, certain modifications to the management agreement for the Wyndham
Anatole Hotel, which is owned by the Anatole Partnership, a partnership in
which certain Crow Family Members have ownership interests and is being leased
and operated by the Anatole Operating Partnership. In order to obtain the
required modifications, Wyndham has agreed to loan up to $10 million to the
Anatole Operating Partnership to be used to renovate and expand an existing
exhibit hall. The loan will mature on the earlier of May 9, 2004 (which may be
extended for an additional year upon extension of the management agreement) or
the termination of the management agreement. The loan will bear interest at
LIBOR plus 2.75% and may be prepaid at any time. The management agreement will
be modified so that the Merger and Related Transactions will not give rise to
a termination right on the part of the Anatole Operating Partnership and so
that the operation of a hotel owned by Patriot REIT will not violate a non-
competition restriction contained in the management agreement. The management
agreement also will be amended to increase certain performance targets upon
which Wyndham's incentive management fee is based. Wyndham will also be
granted a five-year right of first offer to purchase the hotel. Patriot REIT
will succeed to these arrangements upon consummation of the Merger.
Wyndham Franklin Plaza Loan. As part of the Crow Assets Acquisition, Patriot
REIT Partnership will acquire ownership of the Wyndham Franklin Plaza Hotel,
and the mortgage indebtedness secured by the hotel, which has a principal
balance of approximately $47 million (the "Franklin Plaza Loan"), will be
repaid and refinanced. The Franklin Plaza Loan is held by Connecticut General
Life Insurance Company ("Connecticut General"), an affiliate of CIGNA. Philip
J. Ward, a director of Wyndham and a member of the Wyndham Special Committee,
is the Senior Managing Director in charge of the Real Estate Investment
Division of CIGNA Investments, Inc., which is also an affiliate of CIGNA and
which provides investment advisory services to Connecticut General. Prior to
becoming a Wyndham director in June 1996, Mr. Ward had decision-making
authority with respect to the Franklin Plaza Loan. Upon joining the Wyndham
Board, however, Mr. Ward formally delegated such authority to a subordinate
and recused himself from all decisions with respect to the administration,
repayment and/or refinancing of the Franklin Plaza Loan. In addition, Mr. Ward
does not participate in any Wyndham Board decisions concerning the Wyndham
Franklin Plaza Hotel. Mr. Ward has no direct or indirect financial interest in
the Franklin Plaza Loan or its refinancing in connection with the Crow Assets
Acquisition.
Continuing Directors. Messrs. James D. Carreker, Harlan R. Crow, Philip J.
Ward and James C. Leslie and Ms. Susan T. Groenteman, all of whom are
directors of Wyndham, will serve as members of the Boards of Directors of one
or both of Patriot REIT and Wyndham International following the Merger and
receive compensation for their services in accordance with the policies of
those companies. See "Management of Patriot REIT and Wyndham International."
Wyndham Special Committee Compensation. Messrs. Ward and Leslie have
received compensation for their services as members of the Wyndham Special
Committee in accordance with the compensation arrangement approved by the
Wyndham Board of Directors. See "The Merger and Subscription--Reasons for the
Merger and the Related Transactions; Recommendation of the Wyndham Special
Committee."
Indemnification and Insurance Arrangements. The Merger Agreement provides
that after the Merger, Patriot REIT (and prior to the Merger, Wyndham) will
indemnify and hold harmless, to the full extent permitted by applicable law,
any director or officer of Wyndham or any of its subsidiaries (a "Wyndham
Indemnified Party") against claims, suits and proceedings pertaining to the
fact that he is or was a director (or member of a committee of the Wyndham
Board) or officer of Wyndham or any subsidiary or pertaining to the Merger
Agreement or any of the Related Transactions. Patriot REIT is also required,
subject to certain conditions, to maintain in effect for a period of six years
after the Effective Time Wyndham's current policies of directors' and
officers' liability insurance covering the Wyndham Indemnified Parties.
Wyndham has entered into indemnification agreements (the "Wyndham
Indemnification Agreements") with its directors, executive officers and
certain other officers (the "Wyndham Indemnitees"). The Wyndham
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Indemnification Agreements provide for indemnification and advancement of
expenses for proceedings relating to the Wyndham Indemnitee's service as a
director or officer, if the Wyndham Indemnitee acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests
of Wyndham, and such indemnification shall continue after the Wyndham
Indemnitee has ceased to serve as a director or officer of Wyndham. The
Wyndham Charter contains similar indemnification provisions.
The Merger Agreement provides that the Wyndham Indemnified Parties will have
the benefit of all rights to indemnification or exculpation under the Wyndham
Charter, the Wyndham Bylaws or the Wyndham Indemnification Agreements, as in
effect as of the date of the Merger Agreement, for a period of not less than
six years after the Effective Time.
Existing Relationships. Wyndham is currently a party to a number of
transactions in which certain Crow Family Members, Wyndham Senior Management
and Bedrock have a direct or indirect interest. It is anticipated that similar
transactional relationships will exist between Patriot REIT and Wyndham
International and such persons and entities following consummation of the
Merger, subject to the related party transactional policies of Patriot REIT
and Wyndham International.
In light of the foregoing potential conflicts of interest, the Wyndham Board
appointed the Wyndham Special Committee. See "The Merger and Subscription--
Interests of Certain Officers, Directors and Stockholders of Wyndham" and "--
Background of the Merger."
CERTAIN TRANSACTIONS
Wyndham Office Space Lease. In August 1997, Wyndham entered into a lease
with IM Joint Venture ("IM Venture") for approximately 120,000 square feet of
office space at the InfoMart Building located in Dallas, Texas. The lease has
an initial term of ten years with one option to renew for an additional five
years. Rent under the lease is approximately $100,000 monthly. In addition,
Wyndham is required to pay its proportionate share of utility costs, insurance
costs and taxes. Certain Crow Family Members, through IFM Partnership,
currently own a 25% ownership interest in IM Venture. It is anticipated that
in connection with the Merger, Patriot REIT and Wyndham International will
succeed to Wyndham's interest under the lease and occupy the office space.
Pursuant to a redemption agreement, IFM Partnership has the right to cause
IM Venture to redeem the remaining 75% interest (the "Remaining Interest") in
the venture by November 28, 1997 for a cash purchase price of $30 million,
subject to certain adjustments. In the event that the Remaining Interest is
redeemed, the office lease between IM Venture and Wyndham will be replaced by
a modified lease with similar economic terms as the existing lease, but with
certain modified covenants. Pursuant to an agreement between IFM Partnership
and Wyndham, IFM Partnership must notify Wyndham on or before November 25,
1997 whether IFM Partnership will be unable to cause IM Venture to redeem the
Remaining Interest. In the event that IFM Partnership is unable to cause the
redemption of the Remaining Interest, Wyndham has the right either to require
IFM Partnership to assign its redemption rights to Wyndham (subject to the
consent of the holder of the Remaining Interest) or provide IFM Partnership
the funds necessary to cause the redemption, with Wyndham in either case
acquiring the Remaining Interest.
Homegate Termination. Effective October 31, 1997, Wyndham's management of
extended-stay hotels operated under the Homegate Studios & Suites brand
terminated, subject to the consummation of the merger of Homegate with another
company in the lodging industry. Wyndham will receive a $12 million payment in
exchange for the termination. In 1996, Wyndham and Homegate entered into an
agreement under which Wyndham would manage up to 60 Homegate hotels as they
were purchased or developed by Homegate prior to December 31, 1998. Prior to
October 31, 1997, Wyndham managed ten of these hotels. Certain Crow Family
Members have an ownership interest in Homegate, and Harlan R. Crow, a director
of Wyndham, serves on the board of Homegate.
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ACCOUNTING TREATMENT
Patriot REIT will account for the Merger as a purchase in accordance with
Accounting Principles Board Opinion No. 16. Purchase accounting for a
combination is similar to the accounting treatment used in the acquisition of
any asset group. The fair market value of the consideration (cash, stock,
etc.) given by the acquiring company (i.e., Patriot REIT) is used as the
valuation basis for the combination. The assets and liabilities of the
acquired company (i.e., Wyndham) are revalued to their respective fair market
values at the combination date. The financial statements of the acquiring
company reflect the combined operations from the date of combination.
REGULATORY APPROVAL
Under the HSR Act, and the rules promulgated thereunder by the U.S. Federal
Trade Commission (the "FTC"), certain acquisitions of assets or voting
securities may not be consummated without notification being given and certain
information being furnished to the FTC and the Antitrust Division of the
Department of Justice (the "Antitrust Division"), and until specified waiting
period requirements have been terminated or have expired. Each of Patriot
Operating Company and Wyndham have filed notification and report forms under
the HSR Act with the FTC and the Antitrust Division. The waiting period will
expire at 11:59 p.m. on the 30th calendar day following the filing of such
notification and report forms unless the waiting period is terminated early,
as requested by the parties, or unless the FTC or the Antitrust Division
requests additional information from the parties. At any time before or after
consummation of the Merger and the transactions related thereto, the Antitrust
Division or the FTC could take such action under the antitrust laws as it
deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger and the transactions related thereto or
seeking divestiture of substantial assets of Patriot REIT, Patriot Operating
Company or Wyndham. At any time before or after the Effective Time, any state
could take such action under its own antitrust laws as it deems necessary or
desirable. Such action could include seeking to enjoin the consummation of the
Merger and the transactions related thereto or seeking divestiture of
substantial assets of Patriot REIT, Patriot Operating Company or Wyndham.
Private parties may also seek to take legal action under antitrust laws under
certain circumstances.
CERTAIN RESALE RESTRICTIONS
All Paired Shares received by Wyndham stockholders (including CF Securities)
in the Merger and the Related Transactions will be freely transferable, except
that Paired Shares received by persons who are deemed to be "affiliates" (as
such term is defined under the Securities Act) of Wyndham at the time of the
Wyndham Special Meeting may be resold by them only in transactions permitted
by the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 promulgated under the Securities Act in the case of such persons who
become affiliates of Patriot REIT or Wyndham International) or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of Wyndham, Patriot REIT or Patriot Operating Company generally include
individuals or entities that control, are controlled by, or are under common
control with, such party and may include certain officers and directors of
such party as well as principal stockholders of such party. The Merger
Agreement requires Wyndham to exercise its reasonable best efforts to cause
each of its affiliates to execute a written agreement to the effect that such
person will not offer to sell, transfer or otherwise dispose of any of the
Paired Shares issued to such person in or pursuant to the Merger and the
Related Transactions unless (i) such sale, transfer or other disposition has
been registered under the Securities Act, (ii) such sale, transfer or other
disposition is made in conformity with Rule 145 under the Securities Act or
(iii) in the opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Patriot REIT and Wyndham International, such sale, transfer or
other disposition is exempt from registration under the Securities Act.
Substantially all of the Paired Shares issued to affiliates of Wyndham in
connection with the Merger and the Stock Purchase will be subject to a
registration rights agreement entitling the holders of such shares to certain
"shelf," "demand" and "piggyback" registration rights (although the ability of
CF Securities to transfer Paired
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Shares may be restricted under certain limited circumstances under the terms
of the Standstill Agreement). See "Certain Related Agreements--Standstill
Agreements". In accordance with their obligations under such agreement, the
Patriot Companies have registered for sale to the public the Paired Shares
received by such affiliates (including Paired Shares that are issuable upon
conversion of shares of Series A Preferred Stock) pursuant to the Stock
Purchase Agreement and the Merger Agreement in the Registration Statement
relating to this Joint Proxy Statement/Prospectus. See "Risk Factors--Possible
Adverse Effects on Market Price of Paired Shares Arising from Shares Available
for Future Sale" and "--Interests of Certain Officers, Directors and
Stockholders of Wyndham--Registration Rights Agreement."
NEW YORK STOCK EXCHANGE LISTING
It is a condition to the obligations of Patriot REIT and Wyndham to
consummate the Merger and the Related Transactions that the parties obtain the
approval for the listing on the NYSE of the Paired Shares issuable in the
Merger and the Stock Purchase, subject to official notice of issuance. See
"The Merger Agreement--Conditions to the Merger."
APPRAISAL RIGHTS
Under the DGCL, stockholders of Patriot REIT and Patriot Operating Company
do not have appraisal rights in connection with the Merger and the Related
Transactions.
With respect to stockholders of Wyndham, in the event any holder of Wyndham
Common Stock would receive in the Merger and the Merger Subscription a number
of Paired Shares that would cause such holder or any other person or entity to
own, or be deemed to own, Excess Paired Shares, such holder's Excess Paired
Shares would be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust for the benefit of the Beneficiary in
accordance with the Excess Share Provisions. See "Description of Capital
Stock--Certain Provisions of the Restated Charters and Restated Bylaws--
Restrictions on Ownership and Transfer." Under this unlikely circumstance, a
holder of Wyndham Common Stock could receive Excess Stock that would be
transferred to a Trust for the benefit of the Beneficiary such that the
Beneficiary could be characterized as receiving consideration other than
shares of stock of Patriot REIT and shares of stock of Patriot Operating
Company that at the Effective Time are listed on a national securities
exchange or held of record by more than 2,000 holders. If no shares of Excess
Stock are issued in the Merger as a result of the Excess Share Provisions,
then the holders of Wyndham Common Stock will not have appraisal rights.
However, if any shares of Excess Stock are issued in the Merger as a result of
the Excess Share Provisions, then appraisal rights may be available to those
stockholders of Wyndham who demand and perfect appraisal rights in accordance
with the requirements of Section 262 of the DGCL ("Section 262"). Management
of Wyndham is not currently aware of any holder of Wyndham Common Stock whose
holdings would be large enough to cause such holder to receive Excess Stock
pursuant to the Merger. If no Excess Stock is issued to the holders of Wyndham
Common Stock in connection with the Merger, then all Wyndham stockholders who
have delivered a written demand for appraisal rights in accordance with the
requirements of Section 262 will only be entitled to receive the consideration
offered pursuant to the Merger Agreement and such demands for appraisal rights
will be disregarded. Stockholders who wish to seek appraisal are advised to
consult with their legal counsel regarding whether such appraisal rights would
be available and how to demand and perfect such appraisal rights, if
available. Regardless of the ultimate availability of appraisal rights, in
order to exercise appraisal rights, dissenting stockholders must demand and
perfect appraisal rights in accordance with the conditions established by
Section 262.
Section 262 is reprinted in its entirety as Annex K to this Joint Proxy
Statement/Prospectus. The following discussion is not a complete statement of
the law relating to appraisal rights and is qualified in its entirety by
reference to Annex K. This discussion and Annex K should be reviewed carefully
by any holder who wishes to exercise statutory appraisal rights, if available,
or who wishes to preserve the right to do so, as failure to comply with the
procedures set forth herein or therein will result in the loss of appraisal
rights, if available.
A record holder of shares of Wyndham Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time, who otherwise complies with
the statutory requirements of Section 262 and who neither votes in favor of
the Merger
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Agreement nor consents thereto in writing may be entitled to an appraisal by
the Delaware Court of Chancery (the "Delaware Court") of the fair value of his
or her shares of Wyndham Common Stock. All references in this summary of
appraisal rights to a "stockholder" or "holders of shares of Wyndham Common
Stock" are to the record holder or holders of shares of Wyndham Common Stock.
Except as set forth herein, stockholders of Wyndham will not be entitled to
appraisal rights in connection with the Merger.
Under Section 262, where a merger is to be submitted for approval at a
meeting of stockholders, as in the Wyndham Special Meeting, not less than 20
days prior to the meeting, each constituent corporation must notify each of
the holders of its stock for which appraisal rights are available that such
appraisal rights are available and include in each such notice a copy of
Section 262. This Joint Proxy Statement/Prospectus shall constitute such
notice to the record holders of Wyndham Common Stock.
Holders of shares of Wyndham Common Stock who desire to exercise their
appraisal rights must not vote in favor of the Merger Agreement or the Merger
and must deliver a separate written demand for appraisal to Wyndham prior to
the vote by the stockholders of Wyndham on the Merger Proposal. A stockholder
who signs and returns a proxy without expressly directing by checking the
applicable boxes on the reverse side of the proxy card enclosed herewith that
his or her shares of Wyndham Common Stock be voted against the Merger Proposal
or that an abstention be registered with respect to his or her shares of
Wyndham Common Stock in connection with the proposal will effectively have
thereby waived his or her appraisal rights as to those shares of Wyndham
Common Stock because, in the absence of express contrary instructions, such
shares of Wyndham Common Stock will be voted in favor of the proposal. See
"The Meetings of Stockholders." Accordingly, a stockholder who desires to
perfect appraisal rights with respect to any of his or her shares of Wyndham
Common Stock must, as one of the procedural steps involved in such perfection,
either (i) refrain from executing and returning the enclosed proxy card and
from voting in person in favor of the Merger Proposal, or (ii) check either
the "Against" or the "Abstain" box next to the Merger Proposal on such card or
affirmatively vote in person against the Merger Proposal or register in person
an abstention with respect thereto. A demand for appraisal must be executed by
or on behalf of the stockholder of record and must reasonably inform Wyndham
of the identity of the stockholder of record and that such record stockholder
intends thereby to demand appraisal of the Wyndham Common Stock. A person
having a beneficial interest in shares of Wyndham Common Stock that are held
of record in the name of another person, such as a broker, fiduciary or other
nominee, must act promptly to cause the record holder to follow the steps
summarized herein properly and in a timely manner to perfect whatever
appraisal rights are available. If the shares of Wyndham Common Stock are
owned of record by a person other than the beneficial owner, including a
broker, fiduciary (such as a trustee, guardian or custodian) or other nominee,
such demand must be executed by or for the record owner. If the shares of
Wyndham Common Stock are owned of record by more than one person, as in a
joint tenancy or tenancy in common, such demand must be executed by or for all
joint owners. An authorized agent, including an agent for two or more joint
owners, may execute the demand for appraisal for a stockholder of record;
however, the agent must identify the record owner and expressly disclose the
fact that, in exercising the demand, such person is acting as agent for the
record owner.
A record owner, such as a broker, fiduciary or other nominee, who holds
shares of Wyndham Common Stock as a nominee for others, may exercise appraisal
rights with respect to the shares held for all or less than all beneficial
owners of shares as to which such person is the record owner. In such case,
the written demand must set forth the number of shares covered by such demand.
Where the number of shares is not expressly stated, the demand will be
presumed to cover all shares of Wyndham Common Stock outstanding in the name
of such record owner.
A stockholder who elects to exercise appraisal rights, if available, should
mail or deliver his or her written demand to: Wyndham Hotel Corporation, 1950
Stemmons Freeway, Suite 6001, Dallas, TX 75207, Attention: Carla S. Moreland,
Secretary.
The written demand for appraisal should specify the stockholder's name and
mailing address, the number of shares of Wyndham Common Stock owned, and that
the stockholder is thereby demanding appraisal of his or
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her shares. A proxy or vote against the Merger Proposal will not by itself
constitute such a demand. Within ten days after the Effective Time, the
surviving corporation must provide notice of the Effective Time to all
stockholders who have complied with Section 262.
Within 120 days after the Effective Time, either the surviving corporation
or any stockholder who has complied with the required conditions of Section
262 may file a petition in the Delaware Court, with a copy served on the
surviving corporation in the case of a petition filed by a stockholder,
demanding a determination of the fair value of the shares of all dissenting
stockholders. There is no present intent on the part of Patriot REIT or
Patriot Operating Company to file an appraisal petition and stockholders
seeking to exercise appraisal rights should not assume that the surviving
corporation will file such a petition or that the surviving corporation will
initiate any negotiations with respect to the fair value of such shares.
Accordingly, Wyndham stockholders who desire to have their shares appraised
should initiate any petitions necessary for the perfection of their appraisal
rights within the time periods and in the manner prescribed in Section 262. If
appraisal rights are available, within 120 days after the Effective Time, any
stockholder who has theretofore complied with the applicable provisions of
Section 262 will be entitled, upon written request, to receive from the
surviving corporation a statement setting forth the aggregate number of shares
of Wyndham Common Stock not voting in favor of the Merger Proposal and with
respect to which demands for appraisal were received by Wyndham and the number
of holders of such shares. Such statement must be mailed within 10 days after
the written request therefor has been received by the surviving corporation.
If a petition for an appraisal is timely filed and assuming appraisal rights
are available, at the hearing on such petition, the Delaware Court will
determine which stockholders, if any, are entitled to appraisal rights. The
Delaware Court may require the stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Delaware Court may dismiss the proceedings as to such
stockholder. Where proceedings are not dismissed, the Delaware Court will
appraise the shares of Wyndham Common Stock owned by such stockholders,
determining the fair value of such shares exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, to be paid upon the amount determined to be the
fair value. In determining fair value, the Delaware Court is to take into
account all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the financial community
and otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value
of a company." The Delaware Supreme Court stated that in making this
determination of fair value the court must consider market value, asset value,
dividends, earnings prospects, the nature of the enterprise and any other
facts which could be ascertained as of the date of the merger which throw
light on future prospects of the merged corporation. In Weinberger, the
Delaware Supreme Court stated that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the
date of the merger and not the product of speculation, may be considered."
Section 262, however, provides that fair value is to be "exclusive of any
element of value arising from the accomplishment or expectation of the
merger."
Holders of shares of Wyndham Common Stock considering seeking appraisal
should recognize that the fair value of their shares determined under Section
262 could be more than, the same as or less than the consideration they are
entitled to receive pursuant to the Merger Agreement if they do not seek
appraisal of their shares. The cost of the appraisal proceeding may be
determined by the Delaware Court and taxed against the parties as the Delaware
Court deems equitable in the circumstances. Upon application of a dissenting
stockholder of Wyndham, the Delaware Court may order that all or a portion of
the expenses incurred by any dissenting stockholder in connection with the
appraisal proceeding, including, without limitation, reasonable attorney's
fees and the fees and expenses of experts, be charged pro rata against the
value of all shares of stock entitled to appraisal.
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Any holder of shares of Wyndham Common Stock who has duly demanded appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote for any purpose any shares subject to such demand or to receive
payment of dividends or other distributions on such shares, except for
dividends or distributions payable to stockholders of record at a date prior
to the Effective Time.
At any time within 60 days after the Effective Time, any stockholder will
have the right to withdraw such demand for appraisal and to accept the terms
offered in the Merger. After this period, the stockholder may withdraw such
demand for appraisal only with the consent of the surviving corporation. If no
petition for appraisal is filed with the Delaware Court within 120 days after
the Effective Time, stockholders' rights to appraisal shall cease, and all
holders of shares of Wyndham Common Stock will be entitled to receive the
consideration offered pursuant to the Merger Agreement. Inasmuch as the
surviving corporation has no obligation to file such a petition, and Patriot
REIT and Patriot Operating Company have no present intention to do so, any
holder of shares of Wyndham Common Stock who desires such a petition to be
filed is advised to file it on a timely basis. Any stockholder may withdraw
such stockholder's demand for appraisal by delivering to the surviving
corporation a written withdrawal of his or her demand for appraisal and
acceptance of the Merger, except (i) that any such attempt to withdraw made
more than 60 days after the Effective Time will require written approval of
the surviving corporation and (ii) that no appraisal proceeding in the
Delaware Court shall be dismissed as to any stockholder without the approval
of the Delaware Court, and such approval may be conditioned upon such terms as
the Delaware Court deems just.
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THE MERGER AGREEMENT
GENERAL
The Merger Agreement provides for a number of transactions between Patriot
REIT and Wyndham, including the Merger of Wyndham with and into Patriot REIT
and the Merger Subscription for the Merger Subscribed Shares pursuant to the
Merger Subscription Agreement. Set forth below is a summary of the material
terms of the Merger Agreement, including the amendments to the Merger
Agreement effected by the Merger Agreement Amendment. The discussion and
description of the material terms of the Merger Agreement in this Joint Proxy
Statement/Prospectus are subject to and qualified in their entirety by
reference to the April Merger Agreement and the Merger Agreement Amendment,
copies of which are attached to this Joint Proxy Statement/Prospectus as Annex
A and which are incorporated herein by reference.
THE MERGER AND SUBSCRIPTION
Pursuant to the Merger Agreement, at the Effective Time of the Merger,
Wyndham will be merged with and into Patriot REIT, with Patriot REIT being the
surviving company in the Merger. In connection with the Merger, it is
contemplated that Patriot Operating Company's name will be changed to "Wyndham
International, Inc." Presently, shares of Patriot REIT Common Stock and shares
of Patriot Operating Company Common Stock are paired and are transferable only
as a single unit pursuant to the Pairing Agreement. The Pairing Agreement, as
amended by the Pairing Agreement Amendment, will continue after the Merger and
the Related Transactions and, accordingly, immediately following the Merger,
shares of Patriot REIT Common Stock and shares of Wyndham International Common
Stock will be paired and transferable only as a single unit.
Pursuant to the Merger Agreement, subject to adjustment and the right of
Wyndham stockholders to elect to receive cash as described below, Wyndham
stockholders will be entitled to receive, for each share of Wyndham Common
Stock held by them at the Effective Time of the Merger, 1.372 shares of
Patriot REIT Common Stock and 1.372 shares of Wyndham International Common
Stock, which shares will be paired and transferable only as a single unit. In
the event, however, that the Patriot Average Closing Price is less than $21.86
but greater than or equal to $20.87, Wyndham stockholders will be entitled to
receive for each share of Wyndham Common Stock held by them at the Effective
Time of the Merger, the number of Paired Shares equal to $30.00 divided by the
Patriot Average Closing Price, and, in the event that the Patriot Average
Closing Price is less than $20.87, Wyndham stockholders will be entitled to
receive, for each share of Wyndham Common Stock held by them at the Effective
Time of the Merger, 1.438 Paired Shares, provided, however, that in the event
that the Patriot Average Closing Price is less than $20.87, Wyndham has the
right, waivable by it, to terminate the Merger Agreement.
As required by the terms of the Merger Agreement, Wyndham and Patriot
Operating Company have entered into the Merger Subscription Agreement pursuant
to which Wyndham has agreed to pay for, and Patriot Operating Company will
issue directly to the stockholders of Wyndham as part of the consideration to
be paid to such stockholders in the Merger, the Merger Subscribed Shares. The
Merger Subscribed Shares will be issued in accordance with the terms of the
Merger Agreement providing for the issuance of shares of Patriot REIT Common
Stock and Wyndham International Common Stock to Wyndham stockholders in the
Merger and will be paired with the Patriot REIT Common Stock in accordance
with the Pairing Agreement, and Wyndham shall not at any time become a
stockholder of Patriot Operating Company.
Under the terms of the Merger Agreement, Wyndham stockholders have the right
to elect to receive Cash Consideration in lieu of receiving Paired Shares, in
an amount per share equal to the Cash Consideration Fair Market Value;
provided, however, that the maximum amount of cash to be paid to Wyndham
stockholders in the Merger and CF Securities pursuant to the Stock Purchase
will be $100 million pursuant to Cash Elections. In the event that holders of
Wyndham Common Stock and CF Securities elect to receive more than $100 million
in cash, such cash will be allocated on a pro rata basis among such
stockholders and CF Securities based upon the respective number of shares of
Wyndham Common Stock as to which they have elected to receive cash. Holders of
Wyndham Common Stock (other than CF Securities) who make a Cash Election with
respect to some or all
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of their shares of such stock and who receive Cash Consideration on a pro rata
basis will receive Paired Shares for their shares of Wyndham Common Stock that
are not converted into Cash Consideration. See "The Merger and Subscription--
Terms of the Stock Purchase."
In addition, pursuant to the Merger Agreement, each Paired Share outstanding
immediately prior to the Merger will remain outstanding after the Merger and
will, without any action on the part of the stockholders of Patriot REIT and
Patriot Operating Company, represent the same number of Paired Shares.
EFFECTIVE TIME OF THE MERGER
In accordance with the DGCL, the Effective Time of the Merger will occur
upon the approval and acceptance for recording of the Certificate of Merger by
the Delaware Secretary of State. Subject to the fulfillment or waiver of the
other conditions to the obligations of Patriot REIT and Wyndham to consummate
the Merger and the Related Transactions, it is currently expected that the
Merger will be consummated as soon as practicable following the approval by
the stockholders of Patriot REIT, Patriot Operating Company and Wyndham of the
Proposals to be voted upon at their respective stockholders' meetings.
CHARTERS AND BYLAWS
The charter and bylaws of Patriot REIT as amended and in effect immediately
prior to the Merger will be the charter and bylaws of the surviving
corporation in the Merger. The charter and bylaws of Patriot Operating Company
as amended and in effect immediately prior to the Merger will continue as its
charter and bylaws following the Merger.
Pursuant to the Patriot Charter Amendment Proposals, the charters of Patriot
REIT and Patriot Operating Company are proposed to be amended. If the Patriot
Charter Amendment Proposals are approved by the stockholders of Patriot REIT
and Patriot Operating Company, the Restated Charters will be filed with the
Delaware Secretary of State immediately prior to the Merger and will become
the charters of the Patriot Companies following the Merger. The Bylaws of the
Patriot Companies will also be amended prior to the Merger to be consistent
with the Restated Charters, the Cooperation Agreement and the Pairing
Agreement Amendment. See "Proposals to Approve the Amendment and Restatement
of the Patriot REIT and Patriot Operating Company Charters."
CASH ELECTION PROCEDURE
The Form of Election is being mailed to holders of record of Wyndham Common
Stock together with this Joint Proxy Statement/Prospectus. For a Form of
Election to be effective, holders of Wyndham Common Stock must properly
complete such Form of Election, and such Form of Election, together with
Wyndham Certificates representing all shares as to which a Cash Election has
been made, duly endorsed in blank or otherwise in form acceptable for transfer
on the books of Wyndham (or by appropriate guarantee of delivery as set forth
in such Form of Election), must be received by the Exchange Agent at the
address listed on the Form of Election and not withdrawn, by the Election
Date. The Election Date will be announced by Patriot REIT in a news release
delivered to Dow Jones News Service at least five business days prior to the
Election Date.
A Form of Election may be revoked by the stockholder submitting it to the
Exchange Agent only by written notice received by the Exchange Agent prior to
5:00 p.m., New York City time, on the Election Date. In addition, all Forms of
Election will automatically be revoked if the Exchange Agent is notified by
Patriot REIT and Wyndham that the Merger has been abandoned. If a Form of
Election is revoked, the Wyndham Certificate or Wyndham Certificates (or
guarantees of delivery, if applicable) to which such Form of Election relates
will be promptly returned to the stockholder who submitted it or them to the
Exchange Agent.
The determination of the Exchange Agent will be binding as to whether or not
a Cash Election has been properly made or revoked. If the Exchange Agent
determines that any Cash Election was not properly made with respect to shares
of Wyndham Common Stock, such shares shall be treated as shares that were not
subject to a
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Cash Election at the Effective Time, and such shares will be exchanged in the
Merger for the Paired Share Consideration.
EXCHANGE OF WYNDHAM STOCK CERTIFICATES
No later than the close of business on the third business day next following
the Effective Time, (i) Patriot REIT shall deposit with the Exchange Agent
selected by Patriot REIT on or prior to the Effective Time, for the benefit of
the holders of shares of Wyndham Common Stock, (x) a certificate representing
the shares of Patriot REIT Common Stock to be issued pursuant to the terms of
the Merger Agreement, (y) cash in an aggregate amount sufficient to pay the
aggregate Cash Consideration payable to holders of Wyndham Common Stock who
have made a Cash Election pursuant to the Merger Agreement, and (z) the cash
in lieu of fractional Paired Shares, if any, to be paid pursuant to the terms
of the Merger Agreement to the Wyndham stockholders in exchange for the
outstanding shares of Wyndham Common Stock and, simultaneously, (ii) Patriot
Operating Company shall deposit with the Exchange Agent, for the benefit of
the holders of shares of Wyndham Common Stock, a certificate representing the
Merger Subscribed Shares, to be paired with the shares of Patriot REIT Common
Stock and to be issued to the Wyndham stockholders pursuant to the Merger
Subscription (such certificates for shares of Patriot REIT Common Stock, cash,
the certificates for Merger Subscribed Shares and cash in lieu of fractional
Paired Shares shall hereinafter be referred to as the "Exchange Fund").
Promptly after the Effective Time, Patriot REIT will cause the Exchange
Agent to mail to each holder of record of a Wyndham Certificate (i) a Letter
of Transmittal which shall specify that delivery shall be effected, and risk
of loss and title to the Wyndham Certificates shall pass, only upon delivery
of the Wyndham Certificates to the Exchange Agent and (ii) instructions for
use in effecting the surrender of the Wyndham Certificates. Upon surrender of
a Wyndham Certificate for cancellation to the Exchange Agent together with
such Letter of Transmittal duly executed and completed in accordance with the
instructions thereto, the holder of such Wyndham Certificate shall be entitled
to receive in exchange therefor (x) a certificate representing the number of
whole Paired Shares to which such holder shall be entitled, and (y) a check
representing the amount payable to holders of Wyndham Common Stock who have
made a Cash Election, if any, plus the amount of cash in lieu of fractional
Paired Shares, if any, due such holder plus the amount of any dividends or
distributions, if any, pursuant to the terms of the Merger Agreement, after
giving effect to any required withholding tax. The Wyndham Certificate so
surrendered will be canceled. UNLESS WYNDHAM STOCKHOLDERS ARE MAKING CASH
ELECTIONS AS DISCUSSED ABOVE, THEY SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE A LETTER OF TRANSMITTAL.
Patriot REIT and Patriot Operating Company stockholders shall, as a result
of the Merger, continue to own and hold their Paired Shares. PATRIOT REIT AND
PATRIOT OPERATING COMPANY STOCKHOLDERS DO NOT NEED TO SURRENDER THEIR
CERTIFICATES.
No dividends or other distributions on Paired Shares into which any shares
of Wyndham Common Stock are exchangeable as a result of the Merger will be
paid until the Wyndham Certificate or Wyndham Certificates entitling the
holder thereof to such Paired Shares are surrendered for exchange as provided
in the Merger Agreement. Any such dividend or distribution amounts with a
record date after the Effective Time and a payment date prior to both the
first anniversary of the Effective Time and the surrender of such Wyndham
Certificate shall be deposited (less the amount of any withholding taxes which
may be required thereon) with the Exchange Agent on the applicable payment
date, to be held by the Exchange Agent in a non-interest bearing account until
the surrender of such Wyndham Certificate. Following surrender of any such
Wyndham Certificate, the holder thereof shall be entitled to receive in
addition to the Paired Shares issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore payable
with respect to such Paired Shares and not paid to such holder, less the
amount of any withholding taxes which may be required thereon and (ii) at the
appropriate payment date, the amount of any dividends or other distributions
with a record date after the Effective Time but prior to surrender and a
payment date subsequent to surrender payable with respect to such Paired
Shares, less the amount of any withholding taxes which may be required
thereon.
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No fractional Paired Shares will be issued in connection with the Merger.
Each holder of Wyndham Common Stock otherwise entitled to fractional Paired
Shares shall receive, in lieu thereof, upon surrender of a Wyndham
Certificate, an amount in cash (without interest), rounded to the nearest
cent, determined by multiplying (i) the Cash Consideration Fair Market Value
by (ii) the fraction of a Paired Share to which such holder would otherwise be
entitled.
Any portion of the Exchange Fund (including any cash payable to holders of
Wyndham Common Stock who have made a Cash Election, any cash for fractional
Paired Shares, any dividends or distributions of Patriot REIT or Wyndham
International and any shares of Patriot REIT Common Stock or any Merger
Subscribed Shares) that remains unclaimed by the former stockholders of
Wyndham one year after the Effective Time will be distributed as follows: any
cash payable to holders of Wyndham Common Stock who have made a Cash Election,
any cash for fractional Paired Shares, any dividends or distributions of
Patriot REIT and any shares of Patriot REIT Common Stock shall be returned to
Patriot REIT and any dividends or distributions of Wyndham International and
any Merger Subscribed Shares shall be returned to Wyndham International
(provided that Patriot REIT and Wyndham International shall issue said cash or
shares in accordance with the Merger Agreement to former stockholders of
Wyndham who thereafter surrender their certificates). Any former stockholders
of Wyndham who have not complied with the exchange procedures described above
shall thereafter look only to Patriot REIT for issuance or payment of that
portion of their Paired Shares representing Patriot REIT Common Stock and cash
in lieu of fractional Paired Shares, if any, and to Wyndham International for
issuance or payment of that portion of their Paired Shares representing
Wyndham International Common Stock (plus, in each case, dividends and
distributions, if any, as determined pursuant to the Merger Agreement, without
any interest thereon). None of Patriot REIT, Wyndham International, Wyndham,
the Exchange Agent or any other person will be liable to any former holder of
shares of Wyndham Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
No interest will be paid or accrued on cash in lieu of fractional Paired
Shares, if any, or on any dividend or distribution, if any, payable to holders
of Wyndham Certificates.
In the event any Wyndham Certificate has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Wyndham Certificate to be lost, stolen or destroyed and, if required by
Patriot REIT and Wyndham International, the posting by such person of a bond
in such reasonable amount as Patriot REIT and Wyndham International may direct
as indemnity against any claim that may be made against it with respect to
such Wyndham Certificate, the Exchange Agent or Patriot REIT and Wyndham
International will issue in exchange for such lost, stolen or destroyed
Wyndham Certificate the Paired Shares and cash in lieu of fractional Paired
Shares, if any (plus, to the extent applicable, dividends and distributions
payable, if any).
WYNDHAM OPTIONS
At and after the Effective Time, each outstanding option to purchase Paired
Shares that is outstanding immediately prior to the Effective Time (that will
not automatically terminate by its terms as a result of the Merger) shall
remain outstanding and shall continue to represent the right to purchase the
same number of Paired Shares.
At the Effective Time, Wyndham's obligations with respect to each
outstanding option to purchase shares of Wyndham Common Stock that is
outstanding immediately prior to the Effective Time (the "Existing Wyndham
Options") will be assumed by the Patriot Companies, (the "Assumed Options"),
subject to the terms of the Merger Agreement. The Assumed Options shall not
terminate in connection with the Merger and shall continue to have, and be
subject to, the same terms and conditions as set forth in the stock option
plans and agreements (as in effect immediately prior to the Effective Time)
pursuant to which the Existing Wyndham Options were issued, provided that (i)
all references to Wyndham shall be deemed to be references to Patriot REIT or
Wyndham International, as the case may be, and all references to Wyndham
Common Stock shall be deemed to be references to Paired Shares, (ii) each
option shall fully vest and become exercisable in accordance with its terms
(except for one option, covering 14,577 shares of Wyndham Common Stock), and
(iii) each option
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shall be exercisable for that number of whole Paired Shares equal to the
product of the number of shares of Wyndham Common Stock covered by such option
immediately prior to the Effective Time multiplied by the Exchange Ratio and
rounded to the nearest whole number of Paired Shares and (iv) the exercise
price per Paired Share under such option shall be equal to the exercise price
per Paired Share of Wyndham Common Stock under the Existing Wyndham Option
divided by the Exchange Ratio and rounded to the nearest cent. Patriot REIT
shall (A) reserve for issuance the number of shares of Patriot REIT Common
Stock that will become issuable upon the exercise of such Assumed Options
pursuant to the terms of the Merger Agreement and (B) promptly after the
Effective Time issue to each holder of an outstanding Existing Wyndham Option
a document evidencing the assumption by Patriot REIT of Wyndham's obligations
with respect thereto, as applicable. Wyndham International shall (A) reserve
for issuance the number of shares of Wyndham International Common Stock that
will become issuable upon the exercise of such Assumed Options pursuant to the
terms of the Merger Agreement and (B) promptly after the Effective Time issue
to each holder of an outstanding Existing Wyndham Option a document evidencing
the assumption by Wyndham International of Wyndham's obligations with respect
thereto, as applicable. Patriot REIT, Patriot Operating Company and Wyndham
shall consider in good faith whether any of the Assumed Options will provide
that the Patriot Companies shall have the discretion to settle any option
exercise with a cash amount equal to the difference between the option
exercise price and the fair market value of the Paired Shares, less any
applicable tax withholding.
CONDITIONS TO THE MERGER
The respective obligations of Patriot REIT and Wyndham to effect the Merger
and the Related Transactions are subject to the fulfillment or waiver of
certain conditions at or prior to the Closing Date including, among others,
that: (i) approval of the Proposals by the requisite votes of the stockholders
of Patriot REIT, Patriot Operating Company and Wyndham, as applicable, shall
have been obtained; (ii) the waiting period applicable to consummation of the
Merger and the Stock Purchase under the HSR Act shall have expired or been
terminated; (iii) neither of the parties to the Merger Agreement shall be
subject to any order, ruling or injunction of a court of competent
jurisdiction which prohibits consummation of the transactions contemplated by
the Merger Agreement; (iv) the Registration Statement, of which this Joint
Proxy Statement/Prospectus is a part, shall have been declared effective by
the Commission under the Securities Act, and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceedings for that purpose shall have been initiated or
threatened by the Commission; (v) Patriot REIT and Patriot Operating Company
shall have obtained the approval for the listing of the Paired Shares issuable
in the Merger and the Stock Purchase on the NYSE, subject to official notice
of issuance; (vi) all consents, authorizations, orders and approvals of any
governmental commission, board, other regulatory body or third parties
required to be made or obtained by Patriot REIT, Patriot Operating Company or
Wyndham in connection with the Merger Agreement and the Ancillary Agreements
shall have been obtained or made, except where the failure to have obtained or
made any such consent, authorizations, order, approval, filing or
registration, could not reasonably be expected to have a Wyndham Material
Adverse Effect, or a New Patriot Material Adverse Effect, as the case may be,
and (vii) at the Closing Date, Patriot REIT and Wyndham shall have received
the opinion of Goodwin, Procter & Hoar llp, or other nationally recognized law
firm selected by Patriot REIT, and subject to customary conditions and
qualifications (A) to the effect that (x) the Merger and the Stock Purchase
will be treated for federal income tax purposes as a reorganization under
Section 368(a) of the Code, and (y) prior to the Merger, Patriot REIT has
qualified to be treated as a REIT within the meanings of Sections 856 through
860 of the Code, and (z) after the Merger, Patriot REIT will be organized in
conformity with the requirements for qualifications as a REIT under Section
856 through 860 of the Code, the manner of operation of Patriot REIT has
enabled it to meet the requirements for qualification as a REIT under Sections
856 through 860 of the Code as of the Effective Time of the Merger and the
proposed manner of operations of Patriot REIT after the Merger will enable
Patriot REIT to qualify as a REIT under Sections 856 through 860 of the Code,
and (B) confirming the prior opinions rendered to Wyndham in that certain
opinion letter of Goodwin, Procter & Hoar llp dated as of April 14, 1997.
The obligation of Wyndham to effect the Merger and the Related Transactions
is also subject to the fulfillment or waiver of certain conditions at or prior
to the Closing Date including among others, that: (i) except
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as to such breaches of the representations and warranties of Patriot REIT made
in the Merger Agreement, which, together with any breaches of the
representations and warranties made by Patriot REIT and Patriot Operating
Company in the Patriot REIT Ratification Agreement and the Patriot Operating
Company Ratification Agreement, respectively, individually or in the
aggregate, could not reasonably be expected to have a New Patriot Material
Adverse Effect (disregarding for such purposes all materiality and knowledge
qualifiers contained in individual representations and warranties), each of
the representations and warranties of Patriot REIT and Patriot Operating
Company contained in the Merger Agreement, the Patriot REIT Ratification
Agreement and the Patriot Operating Company Ratification Agreement,
respectively, were true and correct when made on the dates of the Merger
Agreement, the Patriot REIT Ratification Agreement and the Patriot Operating
Company Ratification Agreement, respectively, and each of the representations
and warranties of Patriot REIT and Patriot Operating Company contained in the
Merger Agreement, the Patriot REIT Ratification Agreement and the Patriot
Operating Company Ratification Agreement, respectively, shall be true and
correct in all material respects as of the Closing Date as though made on and
as of the Closing Date, except to the extent that consummation of any of
certain permitted transactions or the taking of any of certain actions
permitted by the Merger Agreement or consummation of the Cal Jockey Merger has
resulted in any of such representations and warranties, with the exception of
certain representations and warranties set forth in the Merger Agreement,
being inaccurate as of the Closing Date and except for matters disclosed in
Cal Jockey's or Bay Meadows' Form 10-K for the fiscal year ended December 31,
1996 or the preliminary proxy statement filed by Old Patriot REIT on or about
February 26, 1997 relating to the Cal Jockey Merger; (ii) Patriot REIT and
Patriot Operating Company shall have performed or complied in all material
respects with all agreements and covenants required by the Merger Agreement,
the Patriot REIT Ratification Agreement and the Patriot Operating Company
Ratification Agreement to be performed or complied with by Patriot REIT or
Patriot Operating Company, as the case may be, on or prior to the Closing
Date; (iii) through the Closing Date, there shall not have occurred any
changes concerning Patriot REIT or any of the Patriot REIT subsidiaries that,
when combined, without duplication, with all other changes concerning Patriot
REIT, any of the Patriot REIT subsidiaries, Patriot Operating Company, or any
of the Patriot Operating Company subsidiaries (collectively, "New Patriot
Changes"), have had or could be reasonably likely to have a New Patriot
Material Adverse Effect; provided, however, that consummation of any of
certain permitted transactions or the taking of any of certain actions
permitted by the Merger Agreement shall not, in and of itself, be deemed a New
Patriot Material Adverse Effect; (iv) through the Closing Date, there shall
not have occurred any changes concerning Patriot Operating Company or any of
the Patriot Operating Company subsidiaries that, when combined, without
duplication, with all other New Patriot Changes, have had or could be
reasonably likely to have a New Patriot Material Adverse Effect; (v) the Stock
Purchase shall have been consummated; (vi) Patriot REIT and Patriot Operating
Company shall have entered into the Registration Rights Agreement in
substantially the form attached as an exhibit to the Merger Agreement; (vii)
the Boards of Directors of Patriot REIT and Wyndham International shall have
been fixed and elected in the manner provided in the Merger Agreement and
shall consist of the directors designated as provided therein, and the
officers of Patriot REIT and Wyndham International shall be elected as
provided in the Merger Agreement and shall consist of the officers designated
as provided therein; (viii) Patriot REIT shall have entered into the Patriot
REIT Ratification Agreement and Patriot Operating Company shall have entered
into the Patriot Operating Company Ratification Agreement and the Merger
Subscription Agreement; and (ix) Patriot REIT and Patriot Operating Company
shall have entered into the Cooperation Agreement in substantially the form
attached as an exhibit to the Merger Agreement.
The obligation of Patriot REIT to effect the Merger and the Related
Transactions is also subject to the fulfillment or waiver of certain
conditions at or prior to the Closing Date including among others, that: (i)
except as to such breaches of the representations and warranties, individually
or in the aggregate, which could not reasonably be expected to have a Wyndham
Material Adverse Effect (disregarding for such purposes all materiality and
knowledge qualifiers contained in individual representations and warranties),
each of the representations and warranties of Wyndham contained in the Merger
Agreement shall be true and correct as of the date of the Merger Agreement and
as of the Closing Date as though made on and as of the Closing Date, except to
the extent that consummation of any of certain permitted transactions or the
taking of any of certain actions permitted by the Merger Agreement has
resulted in any of such representations and warranties being
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inaccurate as of the Closing Date, (ii) Wyndham shall have performed or
complied in all material respects with all agreements and covenants required
by the Merger Agreement, the Patriot REIT Ratification Agreement and the
Patriot Operating Company Ratification Agreement to be performed or complied
with by it on or prior to the Closing Date; (iii) through the Closing Date,
there shall not have occurred any changes concerning Wyndham or any of the
Wyndham Subsidiaries that, when combined with all other changes, have had or
could be reasonably likely to have a Wyndham Material Adverse Effect provided,
however, that consummation of any of certain permitted transactions or the
taking of any of certain actions permitted by the Merger Agreement shall not,
in and of itself, be deemed a Wyndham Material Adverse Effect; (iv) the
closing of the transactions contemplated by the Omnibus Purchase and Sale
Agreement shall have become effective subject only to the Merger becoming
effective at the Effective Time, except that such effectiveness shall not be a
condition to Patriot REIT's obligations if Patriot REIT is in material breach
of the terms of the Omnibus Purchase and Sale Agreement; (v) the Stock
Purchase shall have been consummated, except that such consummation shall not
be a condition to Patriot REIT's obligations if Patriot REIT is in material
breach of the terms of the Stock Purchase Agreement; (vi) Wyndham shall have
completed the restructuring of certain assets of Wyndham and/or the Wyndham
subsidiaries, and shall have obtained all necessary and required waivers in
connection therewith (or waivers thereof); (vii) Wyndham shall have entered
into the Patriot REIT Ratification Agreement and the Patriot Operating Company
Ratification Agreement; (viii) Wyndham shall have provided to Patriot REIT,
within ten (10) business days following the date on which Patriot REIT and
Patriot Operating Company execute and deliver the Cooperation Agreement in
substantially the form attached as an exhibit to the Merger Agreement, written
confirmation of the acknowledgment and acceptance by Wyndham of such execution
and delivery, provided that Patriot REIT shall have provided to Wyndham
written notice of such execution and delivery at least eleven (11) business
days prior to the Closing Date; (ix) Wyndham shall have (A) repurchased,
redeemed or otherwise retired the Wyndham Senior Subordinated Notes in
accordance with the terms and conditions of the Wyndham Indenture on terms
reasonably satisfactory to Patriot REIT, or (B) caused the Wyndham Indenture
to be amended to remove or defease those covenants, agreements and
undertakings selected by Patriot REIT that may be removed or defeased in
accordance with the Wyndham Indenture, on terms reasonably satisfactory to
Patriot REIT; and (x) Wyndham shall have received to Patriot REIT's
satisfaction (A) all amendments, consents, authorizations, modifications and
approvals relating to Wyndham's management agreement for the Wyndham Anatole
Hotel in Dallas, Texas and to the grant of a right of first offer to the
Patriot REIT Operating Partnership or its designee with respect to the Wyndham
Anatole Hotel, as summarized in the Omnibus Purchase and Sale Agreement and
(B) such amendments, consents, authorizations, modifications and approvals
required under any lease or related management contract of any of the Wyndham
properties or hotel properties leased or managed by an affiliate of Wyndham
owned by Hospitality Properties Trust or an affiliate thereof to the
transactions contemplated by the Merger Agreement. Among Wyndham's leased
hotel properties are 12 hotels owned by an affiliate of HPT. The HPT
Properties accounted for approximately $60,971,000 and $40,896,000 of
Wyndham's total revenues for 1996 and the first six months of 1997,
respectively. As described above, it is a condition to the obligations of the
Patriot Companies to effect the Merger and the Related Transactions that
Wyndham shall have received, to the Patriot Companies' satisfaction, any
consents required under any lease or related management contract with respect
to the HPT Properties to the transactions contemplated by the Merger
Agreement. Wyndham has requested that HPT consent to the Merger and the
Related Transactions, and negotiations between Wyndham and HPT are ongoing
regarding the terms on which such consent might be obtained. However, as of
the date of this Joint Proxy Statement/Prospectus, no final agreement has been
reached. If the matter is not resolved prior to the Closing Date and the
Patriot Companies elect to waive the condition relating to the HPT consent and
consummate the Merger and the Related Transactions notwithstanding the absence
of such consent, the Patriot Companies intend to vigorously contest any
assertion by HPT, whether in connection with judicial proceedings or
otherwise, that the consummation of such transactions without such consent
constitutes a default under any of the documents relating to the HPT
Properties or entitles HPT to any legal or equitable remedies. There can be no
assurance, however, that the Patriot Companies would be successful in
sustaining their position, and if they are not, it could result in HPT being
entitled to exercise any number of remedies, including termination of the
leases covering the HPT Properties, which could have a material adverse effect
on the Patriot Companies.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement and Ratification Agreements contain various
representations and warranties relating to, among other things: (i) the due
organization, corporate powers, authority and standing and compliance with
laws of Patriot REIT, Patriot Operating Company and Wyndham and their
respective subsidiaries and similar corporate matters; (ii) the authorization,
execution, delivery and enforceability of the Merger Agreement and the
Ancillary Agreements; (iii) the capital structure of Patriot REIT and Wyndham;
(iv) lack of conflicts under charters or bylaws and violations of any
instruments, and required consents or approvals; (v) certain documents filed
by each of Patriot REIT and Wyndham with the Commission and the accuracy of
information contained therein; (vi) conduct of business in the ordinary course
and the absence of certain changes or material adverse effects; (vii) taxes;
(viii) books and records; (ix) real property; (x) permits; (xi) receipt of
fairness opinions; (xii) brokers' and finders' fees with respect to the
Merger; (xiii) litigation; (xiv) environmental matters; (xv) employee benefit
plans; (xvi) labor matters; (xvii) related party transactions; (xviii) certain
contracts and commitments; (xix) the due authorization, validity, fully-paid
status and absence of pre-emptive rights with respect to the Patriot REIT
Common Stock and Wyndham International Common Stock to be issued pursuant to
the Merger, the Merger Subscription, and the Stock Purchase Agreement; and
(xx) the disclosures made by the parties. These representations and warranties
do not survive the Merger.
CERTAIN COVENANTS
Acquisition Proposals. Wyndham agreed to terminate any discussions or
negotiations relating to, or that may reasonably be expected to lead to, any
Acquisition Proposal. Until the termination of the Merger Agreement, neither
Wyndham nor any of the Wyndham Subsidiaries shall directly or indirectly (i)
solicit, initiate or encourage the submission of, any inquiries, proposals or
offers from any person relating to an Acquisition Proposal, (ii) enter into
any agreement with respect to any Acquisition Proposal, or (iii) enter into,
engage in, or participate or continue in, any discussions or negotiations
regarding, or furnish to any person any information with respect to, or take
any other action to facilitate any inquiries or the making of any proposal
that constitutes, or would reasonably be expected to lead to, any Acquisition
Proposal. Notwithstanding anything to the contrary in the Merger Agreement,
Wyndham may (A) furnish information to, or participate in discussions or
negotiations with, any third party that makes or expresses a bona fide
intention to make an unsolicited proposal to acquire Wyndham and/or any of the
Wyndham Subsidiaries pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar transaction,
if the Wyndham Board shall have determined, based on the advice of its outside
legal counsel, that such action is necessary in order to comply with the
directors' fiduciary duties to the stockholders of Wyndham under applicable
law; provided, however, that prior to Wyndham's furnishing such information or
participating in such discussions or negotiations, such third party shall have
executed a confidentiality and standstill agreement with Wyndham having terms
substantially similar to those contained in the Patriot REIT Confidentiality
Agreement relating to the provision of Evaluation Material (as defined in the
Patriot REIT Confidentiality Agreement) by Wyndham to Patriot REIT and (B)
comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
respect to an Acquisition Proposal. Unless the Wyndham Board determines in
good faith, after receiving advice from outside legal counsel, that doing so
would reasonably be expected to be a breach of the directors' fiduciary duties
under applicable law, Wyndham promptly shall advise Patriot REIT orally and in
writing of any Acquisition Proposal or any inquiry regarding any Acquisition
Proposal and the identity of the person making such Acquisition Proposal or
inquiry.
The term "Acquisition Proposal" is defined in the Merger Agreement as any
proposed or actual (i) merger, consolidation or similar transaction involving
Wyndham, (ii) sale, lease or other disposition, directly or indirectly, by
merger, consolidation, share exchange or otherwise, of any assets of Wyndham
or the Wyndham Subsidiaries representing 15% or more of the consolidated
assets of Wyndham and the Wyndham Subsidiaries, (iii) issue, sale or other
disposition of (including by way of merger, consolidation, share exchange or
any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 15% or
more of the votes attached to the outstanding securities of Wyndham, (iv)
transaction in which any person shall acquire beneficial ownership (as such
term is defined in Rule 13d-3 under the Exchange
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Act), or the right to acquire beneficial ownership, or any "group" (as such
term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of, 15% or
more of the outstanding shares of Wyndham Common Stock, (v) recapitalization,
restructuring, liquidation, dissolution, or other similar type of transaction
with respect to Wyndham or any of the Wyndham Subsidiaries, or (vi)
transaction which is similar in form, substance or purpose to any of the
foregoing transactions. The term "Acquisition Proposal" does not include the
Merger, the Related Transactions and the transactions contemplated thereby.
See "--Termination."
Conduct of Business--General. Except as otherwise specifically permitted by
the Merger Agreement, Patriot REIT, Patriot Operating Company and Wyndham have
each agreed to: (i) use their reasonable best efforts, and cause each of their
respective subsidiaries to use their reasonable best efforts, to preserve
intact their business organizations and goodwill and keep available the
services of their respective officers and material employees; (ii) confer on a
regular basis with one or more representatives of the other to report on
material operational matters and any proposals to engage in material
transactions; (iii) promptly notify each other of any material emergency or
other material change in the condition (financial or otherwise), business,
properties, assets, liabilities, prospects or the normal course of their
businesses or in the operation of their properties (including, in the case of
Wyndham and the Wyndham Subsidiaries, properties under management by Wyndham
or any of the Wyndham Subsidiaries), any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the breach in any material respect of any representation or
warranty contained in the Merger Agreement; and (iv) promptly deliver to each
other true and correct copies of any report, statement or schedule filed by or
with respect to it with the Commission subsequent to the date of this
Agreement.
Conduct of Business--Wyndham. Except as otherwise specifically permitted by
the Merger Agreement, Wyndham has agreed: (i) that it shall, and it shall
cause each Wyndham Subsidiary to, conduct its operations according to its
usual, regular and ordinary course in substantially the same manner as
conducted prior to the date of the Merger Agreement; (ii) that it shall not,
and that it shall cause each Wyndham Subsidiary not to, acquire, enter into an
option to acquire or exercise an option or contract to acquire additional real
property or interests therein, incur or guarantee additional indebtedness,
encumber assets or commence or guarantee construction of, or enter into any
agreement or commitment to develop or construct or guarantee, other real
estate projects, except that Wyndham may incur additional indebtedness under
its revolving credit facility as in effect on the date of the Merger Agreement
in an aggregate amount of $50,000,000 and except for certain other disclosed
commitments; (iii) that it shall not amend the Wyndham Certificate or the
Wyndham Bylaws, and shall cause each Wyndham Subsidiary not to amend its
charter, bylaws, joint venture documents, partnership agreements or equivalent
documents; (iv) that it shall not (A) issue any shares of its capital stock,
effect any stock split, reverse stock split, stock dividend, recapitalization
or other similar transaction, except pursuant to the Existing Wyndham Options,
(B) grant, confer or award any option, warrant, conversion right or other
right not existing on the date hereof to acquire any shares of its capital
stock, (C) increase any compensation, other than in the ordinary course of
business consistent with past practice, or enter into or amend any employment
agreement with any of its present or future officers or directors, or (D)
adopt any new employee benefit plan (including any stock option, stock benefit
or stock purchase plan) or amend any Wyndham employee benefit plan in any
material respect, except for changes which are not more favorable to
participants in such plans; (v) that it shall not (A) declare, set aside or
pay any dividend or make any other distribution or payment with respect to any
shares of its capital stock, or (B) except in connection with the use of
shares of capital stock to pay the exercise price or tax withholding in
connection with the Wyndham stock plans, directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital stock
of any of the Wyndham Subsidiaries, or make any commitment for any such
action; (vi) except pursuant to certain disclosed commitments, that it shall
not, and shall cause each of the Wyndham Subsidiaries not to, sell, lease or
otherwise dispose of (A) any Wyndham properties or any portion thereof or any
of the capital stock of or partnership or other interests in any of the
Wyndham Subsidiaries or (B) except in the ordinary course of business, any of
its other assets which are material, individually or in the aggregate; (vii)
except pursuant to certain disclosed commitments and except to the extent
permitted by the Merger Agreement that it shall not, and shall cause each of
the Wyndham Subsidiaries
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not to, make any loans, advances or capital contributions to, or investments
in, any other person (except Wyndham or a wholly owned Wyndham Subsidiary);
(viii) not, and shall cause each of the Wyndham Subsidiaries not to, pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their terms, of
liabilities reflected or reserved against in, or contemplated by, the most
recent consolidated financial statements (or the notes thereto) of Wyndham
included in the Wyndham SEC Reports or incurred in the ordinary course of
business consistent with past practice or pursuant to certain disclosed
commitments or entered into in accordance with the Merger Agreement; (ix) that
it shall not, and shall cause each of the Wyndham Subsidiaries not to, enter
into any commitment which may result in total payments or liability by it in
excess of $100,000 per year, other than commitments for expenses of attorneys,
accountants and investment bankers incurred in connection with the
transactions contemplated by this Agreement; and (x) not, and shall cause each
of the Wyndham Subsidiaries not to, enter into any material commitment with
any officer, director, consultant or affiliate of Wyndham or any of the
Wyndham Subsidiaries.
Notwithstanding any other provisions to the contrary contained in the Merger
Agreement, the Merger Agreement permitted Wyndham or any Wyndham Subsidiary to
enter into an agreement regarding, and consummate, an acquisition transaction
or business combination involving the businesses and/or assets with respect to
ClubHouse.
Conduct of Business--Patriot REIT and Patriot Operating Company. Except as
otherwise specifically permitted by the Merger Agreement, Patriot REIT and
Patriot Operating Company each have agreed not to, prior to the Effective
Time, (A) directly or indirectly through a Patriot REIT Subsidiary or a
Patriot Operating Company Subsidiary, merge or consolidate with, or acquire
all or substantially all of the assets, or beneficial ownership of fifty
percent (50%) or more of the outstanding capital stock or other equity
interests, of any person or entity, or (B) declare, set aside or pay any
dividend or make any other distribution or payment with respect to any shares
of capital stock of Patriot REIT or Patriot Operating Company, as the case may
be, except quarterly cash dividends not exceeding $50,000,000 in addition to
dividends, distributions or payments to the extent required in order for
Patriot REIT to maintain Patriot REIT's status under the Code or avoid the
imposition of any income or excise tax, or (C) except in connection with the
use of shares of capital stock (x) to pay the exercise price or tax
withholding in connection with any of its existing stock plans or (y) in
connection with the redemption, exercise, exchange or conversion of
partnership units of Patriot REIT Partnership or Patriot Operating Company
Partnership, directly or indirectly redeem, purchase or otherwise acquire any
shares of capital stock of Patriot REIT or Patriot Operating Company, as the
case may be, or capital stock or equity interests of any of the Patriot REIT
Subsidiaries or Patriot Operating Company Subsidiaries, or make any commitment
for any such action, or (D) issue any Paired Shares, or grant, confer or award
any option, warrant, conversion right or other right not existing on the date
of the Merger Agreement to acquire any Paired Shares, except (1) pursuant to
Patriot REIT's or Patriot Operating Company's stock option, stock benefit or
stock purchase plan from time to time in effect, (2) in connection with any
transaction otherwise permitted by the terms of the Merger Agreement, and (3)
pursuant to the offer and sale from time to time of Paired Shares or options,
warrants, conversion rights or other rights having an offering price of not
more than $500,000,000 in the aggregate.
Under the terms of the Merger Agreement, the outstanding Indebtedness of
Patriot REIT, the Patriot REIT Subsidiaries, Patriot Operating Company and the
Patriot Operating Company Subsidiaries shall not at any time prior to the
Effective Time exceed $1,250,000,000 in the aggregate. Notwithstanding the
foregoing, the outstanding Indebtedness of any of Patriot REIT, the Patriot
REIT Subsidiaries, Patriot Operating Company or the Patriot Operating Company
Subsidiaries prior to the Effective Time may exceed $1,250,000,000 in the
aggregate if and to the extent the Interim Transactions Committee so approves.
Except as otherwise provided in the Merger Agreement, prior to the Effective
Time, Patriot REIT and the Patriot REIT Subsidiaries may enter into leases
with respect to all or any portion of the Patriot REIT properties, acquire,
lease, enter into an option to acquire, lease or exercise an option or
contract to acquire, or enter into or
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invest in a joint venture or otherwise make an investment in, additional real
property, incur additional indebtedness, encumber assets or commence
construction of, or enter into any agreement or commitment to develop or
construct, other real estate projects.
Each of Patriot REIT and Patriot Operating Company have agreed that, prior
to the Effective Time, neither Patriot REIT nor Patriot Operating Company
shall, directly or indirectly, through a Patriot REIT Subsidiary or a Patriot
Operating Company Subsidiary, (i) enter into or participate in active
negotiations with any third party which would reasonably be expected to lead
to the acquisition by Patriot REIT, Patriot Operating Company, a Patriot REIT
Subsidiary or a Patriot Operating Company Subsidiary, of any other brand name
that would be competitive with Wyndham's brand (a "Competitive Brand"), or
(ii) enter into any agreement with respect to the acquisition by Patriot REIT,
Patriot Operating Company, a Patriot REIT Subsidiary or a Patriot Operating
Company Subsidiary, of a Competitive Brand. Notwithstanding the above, Patriot
REIT, Patriot Operating Company, a Patriot REIT Subsidiary or a Patriot
Operating Company Subsidiary, may, without the prior written approval of
Wyndham, take any other actions not inconsistent with the foregoing,
including, without limitation, responding to unsolicited inquiries from third
parties concerning the acquisition by Patriot REIT, Patriot Operating Company,
a Patriot REIT Subsidiary or a Patriot Operating Company Subsidiary, of a
Competitive Brand, but shall promptly advise Wyndham of any such unsolicited
inquiries.
Liberty Portfolio. Notwithstanding any other provision to the contrary
contained in the Merger Agreement, prior to the Effective Time, Patriot REIT
and/or Patriot REIT Partnership or any of the Patriot REIT Subsidiaries may
make an investment in all or any portion of the commercial real estate assets
disclosed to Wyndham and referred to as the "Liberty Portfolio" that does not
(A) exceed $220,000,000 in the aggregate or (B) result in Patriot REIT having
to consolidate the accounts of the Liberty Portfolio within the accounts of
Patriot REIT (a "Liberty Consolidation"). Patriot REIT may make additional
investments in the Liberty Portfolio in excess of $220,000,000 or take any
action that would result in a Liberty Consolidation (an "Additional Liberty
Investment") only in accordance with the provisions of the Merger Agreement
described below.
Patriot REIT has agreed that, prior to the Effective Time, Patriot REIT
shall promptly notify Wyndham of any determination by the Board of Directors
of Patriot REIT or any Patriot REIT Subsidiary, or by the Board of Directors
of Patriot Operating Company or any Patriot Operating Company Subsidiary,
which determination shall require the unanimous approval of the Patriot REIT
Board or the Patriot Operating Company Board, as the case may be, to enter
into an agreement, arrangement or understanding, or take any other action,
pursuant to which Patriot REIT, such Patriot REIT Subsidiary, or Patriot
Operating Company or such Patriot Operating Company Subsidiary, would, upon
consummation thereof, make an Additional Liberty Investment, which notice
shall include a reasonably detailed description of the proposed Additional
Liberty Investment, and Patriot REIT or such Patriot REIT Subsidiary, or
Patriot Operating Company or such Patriot Operating Company Subsidiary, shall
not enter into any such agreement, arrangement or understanding, or take any
such other action, at any time prior to the date which is fifteen business
days immediately following the date of such notice (the "Wyndham Notice
Period"), unless Patriot REIT or Patriot Operating Company, as the case may
be, has received the prior written consent of Wyndham. Upon expiration of the
Wyndham Notice Period, (i) if Wyndham shall not have previously provided to
Patriot REIT or Patriot Operating Company, as the case may be, written notice
of Wyndham's desire to terminate the Merger Agreement as a result of Patriot
REIT's or Patriot Operating Company's decision to make an Additional Liberty
Investment (the "Wyndham Termination Notice"), Patriot REIT or such Patriot
REIT Subsidiary, or Patriot Operating Company or such Patriot Operating
Company Subsidiary, may proceed with such Additional Liberty Investment,
Wyndham shall be deemed to have consented thereto for purposes of the Merger
Agreement, and the Merger Agreement shall remain in full force and effect, or
(ii) if Wyndham shall have previously provided to Patriot REIT or Patriot
Operating Company, as the case may be, the Wyndham Termination Notice, the
parties shall nevertheless proceed with the Merger in accordance with and
subject to the terms and conditions of the Merger Agreement in the event that
Patriot REIT or Patriot Operating Company, as the case may be, provides
written notice to Wyndham no later than the tenth business day following the
expiration of the Wyndham Notice Period (the "Patriot Notice Period") to the
effect that the Patriot REIT Board or the Patriot Operating Company Board, as
the case may be, has, notwithstanding its earlier
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decision, determined not to proceed with the proposed Additional Liberty
Investment. The Merger Agreement provides that James D. Carreker and two
directors of Wyndham selected by Wyndham shall have the right to participate
in the discussions of the Patriot REIT Board or the Patriot Operating Company
Board, as the case may be, that relate to a proposed Additional Liberty
Investment, provided, however, that such persons shall not have the right to
participate in final deliberations or any vote by the Patriot REIT Board or
the Patriot Operating Company Board, as the case may be, regarding such
proposed Additional Liberty Investment.
Interim Transactions Committee. Patriot REIT and Wyndham have agreed to
constitute and establish an Interim Transactions Committee which shall
evaluate and consider Interim Transactions by Patriot REIT, Patriot Operating
Company or Wyndham or any of their respective Subsidiaries prior to the
Effective Time. The Interim Transactions Committee consists of Paul A.
Nussbaum, William W. Evans III (designated by Patriot REIT), James D. Carreker
(designated by Wyndham) and Philip J. Ward (designated by Wyndham). The
Interim Transactions Committee will be abolished at the Effective Time.
Interim Transactions by Patriot REIT or any of the Patriot REIT Subsidiaries
involving a proposed purchase price (inclusive of any indebtedness to be
assumed in connection therewith) (A) exceeding $100,000,000 individually, or
(B) that, when taken together with all previous Interim Transactions entered
into by Patriot REIT, any of the Patriot REIT Subsidiaries, Patriot Operating
Company or any of the Patriot Operating Company Subsidiaries between the date
of the Merger Agreement and the Effective Time, would exceed $100,000,000 (the
"Patriot Transactions Threshold"), shall require the approval of a majority of
the members of the Interim Transactions Committee, in addition to any other
approvals that may be sought by Patriot REIT or required by law; provided,
however, that the Interim Transactions shall not include the acquisition
transaction or business combination involving the Liberty Portfolio; and
provided, further, that prior to the Effective Time, neither Patriot Operating
Company nor any of the Patriot Operating Company Subsidiaries shall engage in
Transactions exceeding the Patriot Transactions Threshold without the prior
approval of Wyndham. Notwithstanding the provisions contained in the Merger
Agreement prohibiting Patriot REIT or Patriot Operating Company from merging
or consolidating or acquiring all or virtually all of the assets, or
beneficial ownership of fifty percent (50%) or more of the outstanding capital
stock or other equity interests, of any person or entity, Patriot REIT or any
of the Patriot REIT Subsidiaries, or with respect to the following clause (A),
Patriot Operating Company or any of the Patriot Operating Company
Subsidiaries, may (A) acquire or invest in any hospitality or related assets
involving a proposed purchase price (inclusive of any indebtedness to be
assumed in connection therewith) not exceeding the Patriot Transactions
Threshold, and (B) subject to certain provisions contained in the Merger
Agreement prohibiting Patriot REIT, Patriot Operating Company or their
respective subsidiaries from entering a New Business, merge or consolidate
with, or acquire all or substantially all of the assets, or beneficial
ownership of fifty percent (50%) or more of the outstanding capital stock or
other equity interests, of any person or entity, irrespective of the purchase
price involved if such Interim Transaction is first approved by a majority of
the members of the Interim Transactions Committee.
With the exception of the acquisition of ClubHouse, Interim Transactions by
Wyndham or any of the Wyndham Subsidiaries involving a proposed purchase price
(inclusive of any indebtedness to be assumed in connection therewith) (A)
exceeding $50,000,000 individually, or (B) that, when taken together with all
previous Interim Transactions entered into by Wyndham or any of the Wyndham
Subsidiaries between the date of the Merger Agreement and the Effective Time,
would exceed $50,000,000 (the "Wyndham Transactions Threshold"), shall require
the approval of a majority of the members of the Interim Transactions
Committee, in addition to any other approvals that may be sought by Wyndham or
required by law. Notwithstanding certain provisions contained in the Merger
Agreement with respect to the conduct of business by Wyndham and any Wyndham
Subsidiary prior to the Effective Time, Wyndham or any of the Wyndham
Subsidiaries may (A) acquire or invest in any non-real estate hospitality
assets (including management or franchise agreements) involving a proposed
purchase price (inclusive of any indebtedness to be assumed in connection
therewith) not exceeding the Wyndham Transactions Threshold, and (B) merge or
consolidate with, or acquire all or substantially all of the assets, or
beneficial ownership of fifty percent (50%) or more or other equity interests,
of any person or entity, irrespective of the purchase price involved if such
Interim Transaction is first approved by a majority of the members of the
Interim Transactions Committee.
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Office Relocation. Patriot REIT and Wyndham have each agreed that between
the date of the Merger Agreement and the Effective Time, Patriot REIT and
Wyndham shall cooperate with each other in good faith to arrange for the
relocation of the offices of Patriot REIT and/or Wyndham in a manner mutually
satisfactory to the parties.
Organizational Matters. Patriot REIT, Patriot Operating Company and Wyndham
have each agreed that, prior to the Effective Time, they shall cooperate with
each other in good faith and use all reasonable efforts to establish and
develop a combined organization, management and operational structure for
Patriot REIT and Patriot Operating Company, provided that Patriot REIT is
satisfied, in its reasonable judgment after consultation with Wyndham, that
there are no adverse tax or regulatory consequences (except for immaterial
consequences).
Wyndham Senior Subordinated Notes. Wyndham has agreed that, prior to the
Effective Time, it shall use all reasonable efforts to (A) repurchase, redeem
or otherwise retire the Wyndham Senior Subordinated Notes in accordance with
the terms and conditions of the Wyndham Indenture on terms reasonably
satisfactory to Patriot REIT, or (B) take such action, including the
repurchase of Wyndham Senior Subordinated Notes, as may be necessary or
appropriate to cause the Wyndham Indenture to be amended to remove or defease
those covenants, agreements and undertakings selected by Patriot REIT that may
be removed or defeased in accordance with the Wyndham Indenture on terms
reasonably satisfactory to Patriot REIT.
Patriot REIT/Patriot Operating Company Change in Line of Business. Each of
Patriot REIT and Patriot Operating Company have agreed that, notwithstanding
anything to the contrary contained in the Merger Agreement, prior to the
Effective Time, without the prior approval of the Wyndham Board, neither they
nor their respective subsidiaries shall enter into a New Business, including,
subject to the terms of the Merger Agreement, taking any action that would
cause the results of operations of a New Business to be consolidated for
financial reporting purposes with those of Patriot REIT or Patriot Operating
Company; provided, however, that Patriot REIT shall not be deemed to be
engaged in a new line of business by virtue of any investment in the Liberty
Portfolio permitted by the terms of the Merger Agreement.
Filings; Other Actions. Subject to the terms and conditions of the Merger
Agreement, Wyndham, Patriot REIT and Patriot Operating Company have each
agreed: (a) to the extent required, promptly make their respective filings and
thereafter make any other required submissions under the HSR Act with respect
to the Merger and, if applicable, the Stock Purchase; (b) to use all
reasonable best efforts to cooperate with one another in (i) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Effective Time from, governmental or regulatory authorities of
the United States, the several states and foreign jurisdictions and any third
parties in connection with the execution and delivery of the Merger Agreement,
the Merger Subscription Agreement and the other Ancillary Agreements and
consummation of the transactions contemplated by such agreements and (ii)
timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; (c) to use all reasonable best efforts
to obtain in writing any consents required from third parties to effectuate
the Merger and the transactions contemplated thereby and by the Ancillary
Agreements in reasonably satisfactory form to Wyndham and Patriot REIT; and
(d) to use all reasonable best efforts to take, or cause to be taken, all
other action and do, or cause to be done, all other things necessary, proper
or appropriate to consummate and make effective the transactions contemplated
by the Merger Agreement, the Merger Subscription Agreement and the other
Ancillary Agreements. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of the Merger
Agreement, the Merger Subscription Agreement or the other Ancillary
Agreements, the proper officers and directors of Patriot REIT, Patriot
Operating Company and Wyndham shall take all such necessary action.
Listing Application. Each of Patriot REIT, Patriot Operating Company and
Wyndham have agreed to cooperate and promptly prepare and submit to the NYSE
all reports, applications and other documents that may be necessary or
desirable to enable all of the Paired Shares that will be outstanding or will
be reserved for issuance at the Effective Time to be listed for trading on the
NYSE. Each of Patriot REIT, Patriot Operating Company and Wyndham have agreed
to furnish all information about itself and its business and operation and
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all necessary financial information to the other as the other may reasonably
request in connection with the such NYSE listing process. Each of Patriot
REIT, Patriot Operating Company and Wyndham have agreed to promptly correct
any information provided by it for use in the NYSE listing process if and to
the extent that such information shall have become false or misleading in any
material respect. Each of Patriot REIT, Patriot Operating Company and Wyndham
will advise and deliver copies (if any) to the other parties, promptly after
it receives notice thereof, of any request by the NYSE for amendment of any
submitted materials or comments thereon and responses thereto or requests by
the NYSE for additional information.
Affiliates of Wyndham. Wyndham has agreed to deliver to Patriot REIT prior
to the Closing Date a list of Wyndham's affiliates, within the meaning of Rule
145 promulgated under the Securities Act, including, without limitation, all
directors and executive officers of Wyndham, and to use its reasonable best
efforts to deliver or cause to be delivered an affiliate letter from each of
them.
Expenses. Subject to the terms and provisions of the Merger Agreement, all
costs and expenses incurred in connection with the Merger Agreement and the
transactions contemplated thereby shall be paid by the party incurring such
expenses, except that (a) the filing fee(s) in connection with the filing of
the Registration Statement, of which this Joint Proxy Statement/Prospectus
forms a part, with the Commission, (b) the filing fee in connection with the
listing of the Paired Shares on the NYSE, if any, (c) the expenses incurred
for printing and mailing the Form S-4 and the Joint Proxy
Statement/Prospectus, and (d) the filing fee in connection with the filing(s)
under the HSR Act, shall be shared equally by Wyndham, on the one hand, and
Patriot REIT, on the other hand, and except that nothing contained in the
Merger Agreement shall limit or otherwise affect any provision of the
Registration Rights Agreement, the Proxy Agreement or the Stock Purchase
Agreement. Subject to certain provisions of the Merger Agreement, all costs
and expenses for professional services rendered in connection with the
transactions contemplated by the Merger Agreement including, but not limited
to, investment banking and legal services, will be paid by each party
incurring such costs and expenses.
Brand Conversions. Patriot REIT agreed that following the Effective Time, it
will review its portfolio of hospitality assets to determine which of such
assets should in Patriot REIT's reasonable judgment be converted to the
Wyndham brand.
Wyndham's Accumulated and Current Earnings and Profits. Wyndham has agreed
that, at the Merger Closing, Wyndham will deliver to Patriot REIT (A) a
statement of accumulated and current earnings and profits of Wyndham (as
determined for federal income tax purposes) as of a date not more than thirty
(30) days prior to the Closing Date, together with evidence of such
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) from Coopers & Lybrand L.L.P. in a form
reasonably satisfactory to Patriot REIT, and (B) a statement of estimated
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) as of the Closing Date. Wyndham further agreed
that prior to the Closing Date, it will cause Coopers & Lybrand L.L.P. to
agree (i) to deliver to Patriot REIT, prior to December 25, 1997, a statement
of accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) at the Effective Time and (ii) that Patriot REIT
shall be entitled to rely on such statement for purposes of preparing and
filing its federal, state, local and foreign tax returns required to be filed
by it, determining the amount of dividends to be paid to stockholders and
paying any taxes owed by it.
Employee Benefit Matters. Patriot REIT and Wyndham have each agreed that
following the Merger Patriot REIT and/or Wyndham International will provide
benefit plans to the employees of Wyndham and the Wyndham Subsidiaries that
will be comparable, in the aggregate, to those provided by Wyndham and the
Wyndham Subsidiaries to their employees immediately prior to the date of the
Merger Agreement, and Patriot REIT and Wyndham International will file
registration statements under the Securities Act covering their stock option
plans and covering shares issuable upon exercise of the Assumed Options.
INDEMNIFICATION
In the event of any threatened or actual claim, action, suit, proceeding or
investigation, whether civil, criminal or administrative, in which any person
who is as of the date of the Merger Agreement, or has been at
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any time prior to the date of the Merger Agreement, or who becomes prior to
the Effective Time, a director or officer of Wyndham or any of the Wyndham
Subsidiaries (any such person or entity, an "Indemnified Party") is, or is
threatened to be, made a party based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director (including in his capacity as a member of a committee of the Wyndham
Board), officer of Wyndham or any of the Wyndham Subsidiaries, or is or was
serving at the request of Wyndham or any of the Wyndham Subsidiaries as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or (ii) the Merger Agreement or any
of the Related Transactions, whether in any case asserted or arising before or
after the Effective Time, the parties to the Merger Agreement have agreed to
cooperate and use their reasonable efforts to defend against and respond
thereto. Under the Merger Agreement, Wyndham is obligated to indemnify and
hold harmless, and after the Effective Time, Patriot REIT is obligated to
indemnify and hold harmless, as and to the full extent permitted by applicable
law, each Indemnified Party against any losses, claims, damages, liabilities,
costs, expenses (including reasonable attorneys' fees and expenses),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time)
and that (x) Wyndham, and Patriot REIT after the Effective Time, is obligated
to promptly pay expenses in advance of the final disposition of any claim,
suit, proceeding or investigation to each Indemnified Party to the fullest
extent permitted by law, and (y) Wyndham, and Patriot REIT after the Effective
Time, is entitled to participate therein and, to the extent that Wyndham or
Patriot REIT, as the case may be, so desires, to assume the defense thereof
with counsel selected by Wyndham or Patriot REIT, as the case may be (provided
that the Indemnified Party shall have the right to employ separate counsel but
the fees and expenses of such counsel shall be at the Indemnified Party's
expense unless in such claim or action there is, in the opinion of independent
counsel, a conflict concerning any material issue between the position of
Wyndham or Patriot REIT, as the case may be, and the Indemnified Party, in
which case if the Indemnified Party notifies Wyndham or Patriot REIT, as the
case may be, in writing that the Indemnified Party elects to employ separate
counsel at the expense of Wyndham or Patriot REIT, as the case may be, Wyndham
or Patriot REIT, as the case may be, shall not have the right to assume such
defense of such action on behalf of the Indemnified Party; provided, however,
that Wyndham or Patriot REIT, as the case may be, will not be required to pay
the fees and expenses of more than one separate counsel for all Indemnified
Parties); provided, that neither Patriot REIT nor Wyndham will be liable to
pay any amounts in any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld). Any Indemnified Party
wishing to claim indemnification under the terms of the Merger Agreement, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify in writing Wyndham, and after the Effective Time, Patriot REIT,
thereof, provided that the failure to so notify will not affect the
obligations of Wyndham or Patriot REIT except to the extent such failure to
notify materially prejudices such party. No settlement of any such claim,
action, suit, proceeding or investigation will be made without the written
consent of the Indemnified Parties with respect thereto unless such
Indemnified Party receives a full and unconditional release thereof.
Patriot REIT has agreed that all rights to indemnification existing in
favor, and all limitations on the personal liability, of the Indemnified
Parties provided for in the Wyndham Certificate or the Wyndham Bylaws or the
charter or bylaws or similar organizational documents of any of the Wyndham
Subsidiaries, or pursuant to the Wyndham Indemnification Agreements, as in
effect as of the date of the Merger Agreement with respect to matters
occurring prior to the Effective Time will survive the Merger and continue in
full force and effect for a period of not less than six years from the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim (a "Claim") asserted or made within such period will
continue until the disposition of such Claim. At or prior to the Effective
Time, Patriot REIT shall purchase directors' and officers' liability insurance
coverage for Wyndham's directors and officers in a form reasonably acceptable
to Wyndham which shall provide such directors and officers with coverage for
six years following the Effective Time of not less than the existing coverage
under, and have other terms not substantially less favorable to the insured
persons than, the directors' and officers' liability insurance coverage
presently maintained by Wyndham; provided, however, that in any event the cost
of such policy shall not exceed $350,000 per year (the "Maximum Amount"); and
provided, further, that if such coverage cannot be obtained for such cost,
Patriot REIT will maintain, for such six-year period, the maximum amount of
comparable coverage as shall be available for the Maximum Amount on such
terms.
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TERMINATION
The Merger Agreement may be terminated and abandoned at any time prior to
the Effective Time in a number of circumstances including, among others: (i)
by mutual written consent of Patriot REIT and Wyndham; or (ii) by either
Patriot REIT or Wyndham, if any United States federal or state court of
competent jurisdiction or other governmental entity shall have issued a final
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger or the Merger Subscription or
the Crow Assets Acquisition and such order, decree, ruling or other action
shall have become final and nonappealable, provided that the party seeking to
terminate shall have used its best efforts to appeal such order, decree,
ruling or other action; or (iii) by either Patriot REIT or Wyndham, if the
Merger shall not have been consummated on or before December 16, 1997 (other
than due to the failure of the party seeking to terminate the Agreement to
perform its obligations under the Merger Agreement required to be performed at
or prior to the Effective Time); or (iv) by either Patriot REIT or Wyndham, if
any required approval of the stockholders of Patriot REIT, Patriot Operating
Company or Wyndham that is a condition to the obligations of Patriot REIT or
Wyndham under the Merger Agreement shall not have been obtained by reason of
the failure to obtain the required vote upon a vote held at a duly held
meeting of stockholders or at any adjournment thereof; or (v) by either
Patriot REIT or Wyndham, if (x) Congress shall have enacted, or proposed the
enactment of, legislation or any bill having the effect of (A) eliminating the
"grandfathered" status of Patriot REIT under Section 269B(a)(3) of the Code by
virtue of Section 136(c)(3) of the Deficit Act, or (B) causing the Merger and
the Stock Purchase to fail to be treated for federal income tax purposes as a
reorganization under Section 368(a) of the Code, or otherwise eliminating the
treatment of the Merger and the Stock Purchase for federal income tax purposes
as a reorganization under Section 368(a) of the Code, or (y) Congress shall
have enacted legislation or any bill having the effect of causing Wyndham to
recognize gain as a result of the Merger; or (vi) by Patriot REIT, if Wyndham
shall have (a) withdrawn, modified or amended in any respect adverse to
Patriot REIT its approval or recommendation of the Merger Agreement or any of
the transactions contemplated therein, (b) failed to include such
recommendation in this Joint Proxy Statement/Prospectus, (c) recommended any
Acquisition Proposal from a person other than Patriot REIT or any of its
affiliates, (d) publicly expressed no opinion and remained neutral toward any
Acquisition Proposal, or (e) resolved to do any of the foregoing, provided
that, in any such case, Wyndham shall within five (5) business days after
demand by Patriot REIT, deposit the Section 10.3(a)(i) Amount with the escrow
agent to be distributed in accordance with the terms of the Merger Agreement;
or (vii) by Wyndham, if, notwithstanding the provisions of the Merger
Agreement with respect to Acquisition Proposals, the Wyndham Board determines
in good faith, after receiving advice of Wyndham's legal counsel, that such
action is necessary in order for the Wyndham Board to comply with the
directors' fiduciary duties to stockholders under applicable law and the
Wyndham Board authorizes or desires to authorize Wyndham to execute a Superior
Proposal Agreement providing for a Superior Proposal, provided that Wyndham
has, prior to the termination of the Merger Agreement and/or the execution of
such Superior Proposal Agreement, deposited the Section 10.3(a)(i) Amount with
the escrow agent to be distributed in accordance with the terms of the Merger
Agreement (any of the actions described in the preceding clauses (vi) and
(vii) are referred to herein as "Wyndham Breakup Fee Events"); or (viii) by
Wyndham, if (A) Patriot REIT has failed to perform in any material respect any
of its obligations required to be performed by it under the Merger Agreement,
the Patriot REIT Ratification Agreement or the Stock Purchase Agreement and
such failure continues for more than 30 days after notice unless failure to so
perform has been caused by or results from a breach of the Merger Agreement by
Wyndham, or (B) Patriot Operating Company has failed to perform in any
material respect any of its obligations required to be performed by it under
the Merger Subscription Agreement or the Patriot Operating Company
Ratification Agreement and such failure continues for more than 30 days after
notice unless failure to so perform has been caused by or results from a
breach of the Merger Subscription Agreement by Wyndham; or (ix) by Patriot
REIT, if (A) Wyndham shall have failed to perform in any material respect any
of its obligations required to be performed by it under the Merger Agreement
and such failure continues for more than 30 days after notice unless failure
to so perform has been caused by or results from a breach of the Merger
Agreement by Patriot REIT, (B) if Wyndham has failed to perform in any
material respect any of its obligations required to be performed by it under
the Merger Subscription Agreement and such failure continues for more than 30
days after notice unless failure to so perform has been caused by or results
from a breach of the Merger Subscription Agreement by Patriot
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Operating Company, or (x) by Wyndham, in accordance with and subject to, if
the Patriot Average Closing Price is less than $20.87 (as adjusted pursuant to
the terms of the Merger Agreement); or (xi) by Wyndham, if (a) Wyndham has
provided written notice to Patriot REIT of its desire to terminate the Merger
Agreement upon the expiration of the Wyndham Notice Period, and (b) Patriot
REIT has not provided written notice to Wyndham prior to the expiration of the
Patriot Notice Period to the effect that the Patriot REIT Board has,
notwithstanding its earlier decision, determined not to proceed with an
Additional Liberty Investment, in each case in accordance with the terms of
the Merger Agreement; (xii) by Patriot REIT or Wyndham, if the Stock Purchase
Agreement has been terminated pursuant to the terms thereof.
In the event of termination of the Merger Agreement by either Wyndham or
Patriot REIT as provided in the Merger Agreement, the Merger Agreement shall
forthwith become void and have no effect, without any liability or obligation
on the part of Patriot REIT or Wyndham, other than certain provisions
contained in the Merger Agreement relating to confidentiality of information,
expenses, termination fees and expenses and liability of the parties for any
willful breach of the Merger Agreement. Nothing contained in the termination
provisions of the Merger Agreement shall relieve any party for any willful
breach of the representations, warranties, covenants or agreements set forth
in the Merger Agreement.
As a condition to the willingness of Patriot REIT and Wyndham to enter into
the Merger Agreement and to compensate Patriot REIT and Wyndham for entering
into the Merger Agreement, taking action to consummate the transactions
thereunder and incurring the costs and expense related thereto, each of
Patriot REIT and Wyndham agreed that: (i) Wyndham shall deposit with the
escrow agent an amount in cash equal to $30,000,000 (the "Section 10.3(a)(i)
Amount") in the event a Wyndham Breakup Fee Event occurs, in accordance with
and subject to the provisions of the Merger Agreement; (ii) if (A) Patriot
REIT or Wyndham shall have terminated the Merger Agreement due to the failure
of any required approval of the stockholders of Patriot REIT or Patriot
Operating Company, or (B) Wyndham shall have terminated the Merger Agreement
if Wyndham provides notice to Patriot REIT of its desire to terminate the
Merger Agreement upon the expiration of the Wyndham Notice Period or due to
Patriot REIT's failure to provide notice to Wyndham of its decision not to
proceed with the Additional Liberty Investment, then Patriot REIT shall pay
Wyndham an amount in cash equal to Wyndham's documented Expenses actually
incurred by it prior to such termination in connection with the Merger
Agreement and the transactions contemplated thereby, including, without
limitation, fees and expenses of accountants, attorneys and investment
bankers; provided that the aggregate amount of Expenses required to be
reimbursed shall not exceed $7,000,000, and provided, further, that in the
case of such a termination by Wyndham, such amount shall be payable only if
Wyndham is not in material breach at the time of termination of the Merger
Agreement (which breach has continued for more than 30 days after notice or
cannot reasonably be expected to be cured within such period (unless such
breach was caused by or resulted from a breach of the Merger Agreement by
Patriot REIT)).
AMENDMENTS
Patriot REIT and Wyndham may amend the Merger Agreement by written agreement
at any time before or after approval of matters presented in connection with
the Merger by the stockholders of Patriot REIT or Patriot Operating Company or
by the stockholders of Wyndham, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval.
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THE STOCK PURCHASE AGREEMENT
GENERAL
Pursuant to the Stock Purchase Agreement, Patriot REIT has agreed to
purchase from CF Securities, and CF Securities has agreed to sell to Patriot
REIT, up to 9,447,745 shares of Wyndham Common Stock beneficially owned by CF
Securities. Immediately prior to the closing of the Merger, Patriot REIT and
Patriot Operating Company will cause to be issued to CF Securities a
combination of (i) Paired Shares, (ii) shares of Series A Preferred Stock, and
(iii) if applicable, cash, as follows. Immediately prior to the closing of the
Merger, Patriot REIT and Patriot Operating Company will issue to CF Securities
the number of Paired Shares and cash that CF Securities would have received
pursuant to the Merger if CF Securities were a stockholder of Wyndham at the
Effective Time of the Merger and had made a Cash Election, provided, however,
that the number of Paired Shares to be issued to CF Securities will be reduced
(after taking into account the Cash Consideration to be paid to CF Securities)
to the extent necessary to comply with certain REIT qualification requirements
and the Excess Share Provisions. To the extent that such REIT qualification
requirements and the Excess Share Provisions limit the number of Paired Shares
otherwise issuable to CF Securities, Patriot REIT will issue to CF Securities
such number of shares of Series A Preferred Stock (subject to certain REIT
qualification requirements and the Excess Share Provisions) such that the
aggregate number of Paired Shares and shares of Series A Preferred Stock
issued to CF Securities equals the number of Paired Shares that otherwise
would have been issued to CF Securities in the Merger but for the application
of such REIT qualification requirements and the Excess Share Provisions.
However, to the extent that the number of shares of Series A Preferred Stock
issuable to CF Securities also is limited by certain REIT qualification
requirements and the Excess Share Provisions, Patriot REIT will pay to CF
Securities cash in lieu of that number of shares of Series A Preferred Stock
that are not issuable as a result of such REIT qualification requirements in
an amount equal to the Cash Consideration Fair Market Value for each such
share. In addition, in the event that the product of the number of Paired
Shares to be issued to CF Securities at the closing of the Merger multiplied
by the Cash Consideration Fair Market Value is less than $50 million, CF
Securities may terminate the Stock Purchase Agreement. See "--Termination."
Pursuant to the Stock Purchase Subscription Agreement to be entered into
between CF Securities and Patriot Operating Company prior to the closing of
the Stock Purchase, CF Securities will, in connection with the Stock Purchase,
subscribe for the Stock Purchase Subscribed Shares to be issued directly to CF
Securities pursuant to the Stock Purchase in an amount equal to the number of
shares of Patriot REIT Common Stock that will be issued to CF Securities
pursuant to the Stock Purchase. The result of the Stock Purchase and the Stock
Purchase Subscription will be that CF Securities will receive Paired Shares at
the Exchange Ratio for each share of Wyndham Common Stock beneficially owned
by it at the closing of the Stock Purchase, other than those shares of Wyndham
Common Stock as to which CF Securities receives shares of Series A Preferred
Stock or cash at the closing of the Stock Purchase.
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
The Stock Purchase Agreement contains various representations and warranties
relating to, among other things: (i) the due organization, corporate power,
authority and standing of Patriot REIT and CF Securities and similar corporate
matters; (ii) the authorization, execution, delivery and enforceability of the
Stock Purchase Agreement; (iii) certain documents filed by Patriot REIT with
the Commission and the accuracy of information contained therein; (iv)
required consents or approvals; (v) brokers' and finders' fees with respect to
the Stock Purchase Agreement; (vi) ownership of shares; and (vii) tax matters.
The representations, warranties and agreements of the parties (other than
Patriot REIT's representation and warranty concerning documents filed with the
Commission) survive the Stock Purchase Closing indefinitely. Patriot REIT and
CF Securities each have agreed to indemnify and hold harmless the other and
their respective officers, directors and stockholders against losses and
expenses arising out of the inaccuracy or breach of their respective
representations and warranties that survive the Stock Purchase Closing or the
breach or non-fulfillment of their respective covenants and obligations
contained in the Stock Purchase Agreement.
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CONDITIONS TO THE STOCK PURCHASE
The Stock Purchase Closing will occur on the day on which the closing of the
Merger occurs and immediately prior to the closing of the Merger. The Stock
Purchase is subject to (i) certain conditions, waivable by the parties to the
Stock Purchase Agreement, including, without limitation, satisfaction or
waiver by the parties to the Merger Agreement of the Mutual Merger Conditions,
(ii) certain conditions, waivable by Patriot REIT, including, without
limitation, satisfaction or waiver by Patriot REIT of the Patriot REIT Merger
Conditions, the continued accuracy in all material respects as of the date of
the Stock Purchase Closing of the representations and warranties of CF
Securities contained in the Stock Purchase Agreement, the compliance in all
material respects by CF Securities with its covenants and agreements contained
in the Stock Purchase Agreement, and the receipt of an opinion of CF
Securities' counsel as to certain matters, and (iii) certain conditions,
waivable by CF Securities, including, without limitation, satisfaction or
waiver by Wyndham of the Wyndham Merger Conditions, the continued accuracy in
all material respects as of the date of the Stock Purchase Closing of certain
representations and warranties of Patriot REIT contained in the Stock Purchase
Agreement, the compliance in all material respects by Patriot REIT with its
covenants and agreements contained in the Stock Purchase Agreement, and the
receipt of an opinion of Goodwin, Procter & Hoar llp confirming the prior
opinions rendered to CF Securities in that certain opinion letter dated as of
April 14, 1997.
TERMINATION
The Stock Purchase Agreement may be terminated and abandoned at any time
prior to the Stock Purchase Closing, in a number of circumstances including,
among others, (i) by Patriot REIT or CF Securities, if the Merger Agreement
shall have been terminated, (ii) by mutual consent of Patriot REIT and CF
Securities, (iii) by CF Securities, if Patriot REIT has failed to perform in
any material respect any of its respective obligations required to be
performed by it under the Stock Purchase Agreement and such failure continues
for more than 30 days after notice unless failure to so perform has been
caused by or results from a breach of the Stock Purchase Agreement by CF
Securities; (iv) by Patriot REIT, if CF Securities shall have failed to
perform in any material respect any of the obligations required to be
performed by CF Securities under the Stock Purchase Agreement and such failure
continues for more than 30 days after notice unless failure to so perform has
been caused by or results from a breach of the Stock Purchase Agreement by
Patriot REIT; and (v) by Patriot REIT, at any time (including on the date of
the Stock Purchase Closing) if Patriot REIT shall reasonably conclude that, as
a result of circumstances discovered in connection with the investigation of
whether there exist any circumstances which could cause Patriot REIT to be
"closely held" within the meaning of Section 856(a) of the Code or to derive
or accrue or be allocated any amount that is treated as other than "rents from
real property" by reason of Section 856(d)(2)(B) of the Code, or information
obtained in any other manner, there is a realistic possibility (as defined in
the Treasury Regulations promulgated by the Internal Revenue Service) that the
Cash in Lieu of Preferred Stock Amount would exceed $25 million.
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THE OMNIBUS PURCHASE AND SALE AGREEMENT
GENERAL
The Omnibus Purchase and Sale Agreement, in conjunction with the eleven
Underlying Purchase and Sale Agreements, provides for a number of transactions
between the Patriot REIT Partnership and the Crow Family Entities, including
the purchase by the Patriot REIT Partnership from the Crow Family Entities of
the Crow Hotel Properties with 3,072 rooms, located throughout the United
States, for $331.7 million in cash, plus approximately $14 million in
additional cash if the Earnout Properties meet certain operational targets.
This discussion and description of the material terms of the Omnibus Purchase
and Sale Agreement in this Joint Proxy Statement/Prospectus are subject to and
qualified in their entirety by reference to the Omnibus Purchase and Sale
Agreement and the Underlying Purchase and Sale Agreements, copies of which
have been filed as exhibits to the Registration Statement of which this Joint
Proxy Statement/Prospectus forms a part and which are incorporated herein by
reference.
PURCHASE AND SALE OF PROPERTIES
Pursuant to the Omnibus Purchase and Sale Agreement, each Crow Family Entity
agreed, with respect to the Final Property owned by such Crow Family Entity,
to sell and transfer such property to the Patriot REIT Partnership or any
person that the Patriot REIT Partnership so designates pursuant to the terms
of the applicable Underlying Purchase and Sale Agreement and the Omnibus
Purchase and Sale Agreement. In consideration of such sale and transfer by the
Crow Family Entities, and in reliance on the representations and warranties of
the Crow Family Entities in their respective Underlying Purchase and Sale
Agreements and in the Omnibus Purchase and Sale Agreement, the Patriot REIT
Partnership agreed to pay to each Crow Family Entity, the Allocated Purchase
Price, as such Allocated Purchase Price may be adjusted pursuant to the
applicable Underlying Purchase and Sale Agreement.
As defined in the Omnibus Purchase and Sale Agreement, the term "Final
Property" means those Crow Hotel Properties that are not (i) any of the Crow
Hotel Properties for which the relevant Underlying Purchase and Sale Agreement
is terminated by the Patriot REIT Partnership in the event of a material
adverse effect on the operation, value, use, marketability, financeability or
insurability of the applicable Crow Hotel Property (a "Rejected Property") or
(ii) any Crow Hotel Property (a) that is not a Rejected Property and (b) with
respect to which the conditions of the Patriot REIT Partnership's performance
of its obligations pursuant to the applicable Underlying Purchase and Sale
Agreement shall not have been satisfied or waived as of the closing date of
the Crow Assets Acquisition (an "Undelivered Property"); provided, however,
that in the event the conditions set forth in the Omnibus Purchase and Sale
Agreement to the Patriot REIT Partnership's obligation to consummate the
transactions contemplated by the Omnibus Purchase and Sale Agreement are not
satisfied or waived by the Patriot REIT Partnership with respect to one or
more of the Final Properties, then at the election of the Patriot REIT
Partnership, "Final Properties" means those Final Properties for which such
conditions have been satisfied or waived.
EARNOUT PROPERTIES
The Earnout Payments for the Wyndham Riverfront Hotel, located in New
Orleans, Louisiana and the Wyndham La Guardia Garden Hotel, located in East
Elmhurst, New York (collectively, the "Earnout Properties"), will be made on
April 30, 2000 to the applicable Crow Family Entities based on certain
calculations set forth in the Omnibus Purchase and Sale Agreement that are
based on the Earnout Properties achieving certain Earnout NOI (as defined
below).
As defined in the Omnibus Purchase and Sale Agreement, the term "Earnout
NOI" means, with respect to a Crow Hotel Property, the amount by which actual
fiscal year 1999 gross revenues from hotel operations exceed the aggregate of,
without duplication, (a) all operating expenses of such Crow Hotel Property
accrued during such period, including amounts payable to such Crow Hotel
Property's manager pursuant to the applicable
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management contract for such Crow Hotel Property, (b) fixed charges paid
during such period and (c) an allowance of 4% of gross revenues for capital
expenditures.
From and after the closing date of the Crow Assets Acquisition, the Patriot
REIT Partnership has agreed (i) to operate each Earnout Property in
substantially the same manner as each such property was operated before the
closing date of the Crow Assets Acquisition pursuant to the terms of the
respective property management contracts in effect for such property, and keep
such properties in good condition, casualty excepted, so as to maintain the
caliber of the operations conducted at such properties and the goodwill of all
tenants of such properties and all employees, guests, and other customers
thereof; (ii) to maintain each Earnout Property's books of account and records
in the usual, regular and ordinary manner, in accordance with sound accounting
principles applied on a basis consistent with the basis used in keeping such
books and records under the applicable management contracts; (iii) to deliver
to the applicable Crow Family Entity, within 20 days of the end of each
calendar quarter, quarterly operating statements for the previous quarter
indicating the gross revenues and gross operating expenses of the Earnout
Properties and all departments thereof and, by the 60th day of each calendar
year, the annual operating statements for the prior year; (iv) to allocate all
national marketing sales, centralized reservations and other allocated
operational costs of the manager to the Earnout Properties in a manner
consistent with current practices and in a manner such that such properties
shall not bear a disproportionate share of such costs; and (v) that the
applicable Crow Family Entity shall retain an insurable interest in the
Earnout Properties and shall be named an additional insured on the business
interruption insurance policy maintained by the Patriot REIT Partnership.
REPRESENTATIONS AND WARRANTIES
The Underlying Purchase and Sale Agreements contain various representations
and warranties relating to, among other things: (i) the due organization,
corporate power, authority and standing of each of the Crow Family Entities;
(ii) the authorization, execution, delivery and enforceability of the
Underlying Purchase and Sale Agreements; (iii) non-contravention and required
consents or approvals; (iv) taxes; (v) compliance with existing laws; (vi)
operating agreements; (vii) insurance; (viii) condemnation or eminent domain
proceedings regarding the respective properties; (ix) proposed changes
affecting any street or road adjacent to or serving the respective properties;
(x) litigation and other proceedings and labor and employment matters; (xi)
financial information and submission matters described in each of the
respective Underlying Purchase and Sale Agreements; (xii) bankruptcy
proceedings; (xiii) hazardous substances; (xiv) occupancy agreements with
respect to the respective properties; (xv) good standing and lack of default
under any of the leases pursuant to which the Crow Family Entities lease the
items of tangible personal property used in the operations of each of the
respective properties; (xvi) Americans with Disabilities Act; (xvii)
structural condition concerning the respective properties; (xviii) zoning and
platting; (xix) the respective properties' access to and from public streets
or roads; (xx) commitments to make any improvements of a public or private
nature on or off the respective properties; (xxi) property interests owned by
the Crow Family Entities which are necessary for the operation of the
respective hotels; (xxii) absence of a relationship with the Central States,
Southeast and Southwest Areas Pension Fund; and (xxiii) the space leases as
described in each of the Underlying Purchase and Sale Agreements.
CERTAIN COVENANTS
Acceleration of Study Period. Each Crow Family Entity agreed that the
Patriot REIT Partnership may, at any time, unilaterally waive any further
rights it may have under the study period applicable to any particular Crow
Hotel Property commencing on the date the applicable Underlying Purchase and
Sale Agreement has been fully executed and delivered, and continuing through
the date that is thirty days thereafter.
Option to Purchase Milwaukee Hotel. As disclosed in the Underlying Purchase
and Sale Agreement for the Milwaukee Hotel, the Crow Family Entities agreed
that the approval of and consent to the sale and purchase of the Milwaukee
Hotel must be obtained from (i) the current mortgage lender on the Milwaukee
Hotel since its mortgage loan is closed to prepayment until December 31, 1998
and (ii) the ground lessor of the Milwaukee Hotel. In the event the Milwaukee
Hotel is not a Final Property as a result of the failure to obtain such
mortgage
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lender's and such ground lessor's approval and consent prior to the closing
date of the Crow Assets Acquisition, the Crow Family Entity that owns the
Milwaukee Hotel agreed that it will use all commercially reasonable good faith
efforts (without payment of additional consideration) to obtain such approvals
and consents as quickly as possible during the 24-month period commencing on
the closing date of the Crow Assets Acquisition and during such period it will
not enter into any agreement which precludes conveyance of the Milwaukee Hotel
to the Patriot REIT Partnership. The Crow Family Entities agreed that when and
if during such 24-month period such approvals and consents are obtained or the
prohibition on prepayment expires, the Patriot REIT Partnership will have the
right to purchase the Milwaukee Hotel pursuant to terms substantially similar
to the terms with respect to which the Milwaukee Hotel would have been
acquired pursuant to its Underlying Purchase and Sale Agreement if the
Milwaukee Hotel had been a Final Property at the closing date of the Crow
Assets Acquisition at a purchase price equal to the then Milwaukee NOI
multiplied by 10. The Patriot REIT Partnership agreed that if it exercises
such right to purchase the Milwaukee Hotel, the Patriot REIT Partnership shall
be obligated to pay the prepayment premium or fee due under such mortgage
loan, but the Patriot REIT Partnership shall be entitled to negotiate the
amount of any such prepayment premium or fee with the mortgage lender and such
Crow Family Entity shall cooperate in connection therewith.
Rights of First Refusal on Offer Properties. The Crow Family Entities owning
the Offer Properties (the Wyndham Bristol Hotel and all of the Undelivered
Properties) agreed that, with respect to each property that is an Offer
Property except for the Milwaukee Hotel, and for the 24-month period
commencing on the closing date of the Crow Assets Acquisition, the Patriot
REIT Partnership shall have a right of first refusal to purchase such Offer
Property or Offer Properties from the respective Crow Family Entities.
Patriot REIT Partnership's right of first refusal to purchase such Offer
Property or Offer Properties is subject to certain terms and conditions set
forth in the Omnibus Purchase and Sale Agreement including (i) Patriot REIT
Partnership's exclusive right for a 30-day period to negotiate and enter into
a purchase and sale agreement with respect to an Offer Property if the Crow
Family Entity owning such Offer Property receives an unsolicited bona fide
third party offer to transfer its Offer Property or a direct or indirect
interest in such Crow Family Entity (each, a "Crow Interest") or if a Crow
Family Entity otherwise intends to transfer a Crow Interest; and (ii) Patriot
REIT Partnership's right to elect to purchase a Crow Interest if a Crow Family
Entity receives a bona fide third party offer to transfer such Crow Interest.
Rights of First Offer on Offer Properties. Each Crow Family Entity agreed
that, with respect to its property that is an Offer Property which has not
previously been conveyed to a third party upon the failure of the Patriot REIT
Partnership to exercise its right of first refusal on such Offer Property, and
with respect to the Milwaukee Hotel unless the Milwaukee Hotel has previously
been conveyed pursuant to the Patriot REIT Partnership's option to purchase
the Milwaukee Hotel, in the case of the Offer Properties other than the
Milwaukee Hotel, for the 24-month period commencing 24 months after the
closing date of the Crow Assets Acquisition, and in the case of the Milwaukee
Hotel, for the period commencing on the date the Patriot REIT Partnership
fails to exercise its option to purchase the Milwaukee Hotel after the
Milwaukee Hotel can be delivered and continuing until that date which is 48
months after the closing date of the Crow Assets Acquisition, if a Crow Family
Entity receives a bona fide third party offer to transfer a Crow Interest, or
if a Crow Family Entity otherwise intends to transfer a Crow Interest, it
shall first deliver to the Patriot REIT Partnership written notice ( the
"Offer Notice") thereof, and the Patriot REIT Partnership shall have a right
of first offer to purchase such Crow Interest.
Patriot REIT Partnership's right of first offer to purchase a Crow Interest
is subject to certain terms and conditions set forth in the Omnibus Purchase
and Sale Agreement including (i) Patriot REIT Partnership's exclusive right to
negotiate with the Crow Family Entity during a period of 30 days following
receipt of the Offer Notice; (ii) the Crow Family Entity's right to transfer
the Crow Interest in the event the Patriot REIT Partnership and the Crow
Family Entity do not agree to the terms of a purchase and sale agreement
within such 30-day period; and (iii) the Patriot REIT Partnership's right to
elect to purchase the Crow Interest if the economic return to the Crow Family
Entity from the transaction convered by the Offer Notice fails to meet certain
thresholds.
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Palm Springs Management Contract. The Crow Family Entity that owns Palm
Springs agreed that it will use its commercially reasonable good faith efforts
to cause the management contract for Palm Springs to be extended for the
maximum period possible without non-Crow Family Entity third party consent and
will thereafter use its commercially reasonable good faith efforts to cause
such management contract to be continually renewed for a period of six years
with Wyndham, or Patriot REIT, or at its election, an affiliate thereof, as
manager.
CONDITIONS TO CLOSING
The obligations of the Crow Family Entities and the Patriot REIT Partnership
to consummate the transactions contemplated by the Omnibus Purchase and Sale
Agreement are subject to the satisfaction or waiver by the Patriot REIT
Partnership and the Crow Family Entities, on or prior to the closing date of
the Crow Assets Acquisition, of the following conditions: (i) the Merger shall
be consummated concurrently with consummation of the Crow Assets Acquisition;
and (ii) the stipulated net operating income attributable to the Final
Properties shall be no less than 65% of the stipulated net operating income
attributable to all of the Crow Hotel Properties (the "NOI Basket").
The obligation of the Patriot REIT Partnership to consummate the
transactions contemplated by the Omnibus Purchase and Sale Agreement is
subject to the satisfaction or waiver, in writing, by the Patriot REIT
Partnership, on or prior to the closing date of the Crow Assets Acquisition,
of each of the following conditions: (i) each Crow Family Entity that is a
party to an Underlying Purchase and Sale Agreement shall have fully complied
in all material respects with all of its respective obligations under the
Omnibus Purchase and Sale Agreement; (ii) an amendment to the management
contract with respect to the Wyndham Anatole Hotel, on terms in accordance
with the Omnibus Purchase and Sale Agreement in all material respects, shall
have been executed and the management contract for Palm Springs shall have
been extended to the maximum term that may be effected without non-Crow Family
Entity third-party consent; (iii) the actions described in the Lease
Termination Agreement by and among Crow Hotel Lessee, Inc. and the Patriot
REIT Partnership shall have occurred, including the termination of the
existing leases between Patriot REIT Partnership and Crow Hotel Lessee, Inc.
relating to the Wyndham Greenspoint and Wyndham Atlanta Midtown hotels without
cost to either and the termination of certain other agreements and
arrangements between them; (iv) each entity that received limited partnership
interests in the Patriot REIT Partnership (each, a "Greenspoint Partner")
pursuant to the consummation of the transactions in the Greenspoint Agreement
by and between Houston Greenspoint Hotel Associates, L.P. and PAH Acquisition
Corporation, as assigned to the Patriot REIT Partnership (the "Greenspoint
Agreement") shall have agreed (a) to cooperate and do all administrative and
ministerial acts as may be reasonably requested by the Patriot REIT
Partnership to effect a private label REIT prior to or upon the closing date
of the Crow Assets Acquisition and (b) in the event a private label REIT is
not utilized, to sell all of its interests in the Patriot REIT Partnership to
such person or persons as the Patriot REIT Partnership shall have designated
no later than the closing date of the Crow Assets Acquisition (subject (x) to
the Patriot REIT Partnership satisfying its indemnification obligation under
the Greenspoint Agreement and (y) to the condition that the collapse of Crow
Hotel Lessee, Inc. can be effected without terminating or otherwise adversely
affecting the additional consideration payable under the provisions of the
Greenspoint Agreement).
TERMINATION
The Omnibus Purchase and Sale Agreement may be terminated at any time at or
prior to the closing date of the Crow Assets Acquisition: (i) by mutual
agreement of the Patriot REIT Partnership and a majority of the Crow Family
Entities (excluding owners of the Rejected Properties); (ii) by the Patriot
REIT Partnership, if there have been material breaches by a majority of the
Crow Family Entities of any representation, warranty, covenant or agreement in
the Omnibus Purchase and Sale Agreement on the part of such Crow Family
Entities, or if material representations of a majority of the Crow Family
Entities shall fail to be true in all material respects, in either case, after
notice and opportunity for cure; (iii) by a majority of the Crow Family
Entities (excluding owners of Rejected Properties), if there has been a
material breach by the Patriot REIT Partnership of any representation,
warranty, covenant or agreement set forth in the Omnibus Purchase and Sale
Agreement on the part of the Patriot
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REIT Partnership, or if any material representation of the Patriot REIT
Partnership shall fail to be true in all material respects, in either case,
after notice and opportunity for cure; (iv) by the Patriot REIT Partnership,
if all of its conditions for closing set forth in the Omnibus Purchase and
Sale Agreements, and by a majority of the Crow Family Entities that are
parties to the final Underlying Purchase and Sale Agreements if all of such
majority's conditions for closing in the Omnibus Purchase and Sale Agreement
shall not have been satisfied or waived on or before the later of (x) the time
that the Merger Agreement is terminated under the termination provisions
thereof and (y) in the event the Merger Agreement shall have been terminated,
5:00 p.m., Dallas time, on the closing date of the Crow Assets Acquisition,
other than as a result of a breach of the Omnibus Purchase and Sale Agreement
by the terminating party; (v) by either the Patriot REIT Partnership or a
majority of the Crow Family Entities (excluding owners of Rejected Properties)
if the Patriot REIT stockholders fail to approve the Merger and, as a
consequence thereof, the Merger Agreement is terminated; and (vi) by the
Patriot REIT Partnership in the event that the Merger Agreement shall be
terminated in the event that Wyndham executes a Superior Proposal Agreement
providing for a Superior Proposal.
TERMINATION FEES
If the Omnibus Purchase and Sale Agreement is terminated as a result of
Patriot REIT's stockholders' failure to approve the Merger, then the Patriot
REIT Partnership shall reimburse the Crow Family Entities for reasonable
expenses incurred and paid by the Crow Family Entities in connection with the
Omnibus Purchase and Sale Agreement in an amount equal to the lesser of
$3,000,000 or the sum of such expenses. The Crow Family Entities shall not be
entitled to receive any payment if, at the time of delivery of the applicable
notice of termination, it was reasonably likely that the closing condition
pertaining to the NOI Basket would not be satisfied.
In the event that (i) the Omnibus Purchase and Sale Agreement is terminated
as a consequence of the termination of the Merger Agreement, and (ii) Wyndham
is required to pay any amount of the Section 10.3(a)(i) Amount pursuant to the
Merger Agreement, then (A) if the Patriot REIT Partnership waives the
condition that the Merger have been consummated and a majority of the Crow
Family Entities (excluding owners of Rejected Properties) do not waive such
condition, then the Crow Family Entities are required to pay the Patriot REIT
Partnership $11,000,000, and (B) if a majority of the Crow Family Entities
(excluding owners of Rejected Properties) waive the condition that the Merger
have been consummated and the Patriot REIT Partnership does not waive such
condition, then the Patriot REIT Partnership is required to pay the Crow
Family Entities $11,000,000.
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CERTAIN RELATED AGREEMENTS
PROXY AGREEMENT
Pursuant to the Proxy Agreement, CF Securities and the Wyndham Management
Stockholders, which, as of the date of this Joint Proxy Statement/Prospectus,
beneficially own or have the right to vote an aggregate of 9,447,745 and
2,411,296 shares, respectively, (or 43.7% and 11.2%, respectively) of the
total outstanding shares of Wyndham Common Stock as of the Wyndham Record
Date, have agreed, subject to certain conditions, to vote CF Securities' and
the Wyndham Management Stockholders' shares of Wyndham Common Stock (i) in
favor of the approval of the Merger Proposal to be voted upon at the Wyndham
Special Meeting, (ii) against any Acquisition Proposal and any proposal for
any action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Wyndham
under the Merger Agreement or which could result in any of the conditions of
Wyndham's obligations under the Merger Agreement not being fulfilled, (iii)
against any change in the directors of Wyndham, any change in the present
capitalization of Wyndham or any amendment to Wyndham's certificate of
incorporation or bylaws, any other material change in Wyndham's corporate
structure or business or any other action which would reasonably be expected
to impede, interfere with, delay, postpone or materially adversely affect the
transactions contemplated by the Merger Agreement or the Stock Purchase
Agreement or the likelihood of such transactions being consummated, and (iv)
in favor of any other matter necessary for the consummation of the
transactions contemplated by the Merger Agreement. CF Securities and the
Wyndham Management Stockholders have also granted an irrevocable proxy to
Patriot REIT to so vote shares held of record by them. CF Securities and the
Wyndham Management Stockholders also have agreed to cause all shares of
Wyndham Common Stock beneficially owned by them, and any shares owned by them
not voted under the proxy, to be voted in accordance with the foregoing.
In addition, to the extent CF Securities or the Wyndham Management
Stockholders (or their respective affiliates) hold any shares of Patriot REIT
or Patriot Operating Company, they have agreed to vote (or to cause such
affiliates to vote) such shares in favor of the Merger Proposal and the
transactions contemplated thereby and any other matter necessary for the
consummation of the transactions contemplated thereby and against any matter
which could reasonably be expected to impede, interfere with, delay, postpone
or materially adversely affect the transactions contemplated by the Merger
Agreement or the Stock Purchase Agreement or the likelihood of such
transactions being consummated. To the best of the knowledge of Patriot REIT,
Patriot Operating Company and Wyndham, as of the date of this Joint Proxy
Statement/Prospectus none of CF Securities, the Wyndham Management
Stockholders (and their respective affiliates) hold any shares of Patriot REIT
or Patriot Operating Company.
Under the Proxy Agreement, CF Securities and the Wyndham Management
Stockholders have each agreed that they will not, and will not permit any of
their affiliates (other than Wyndham to the extent permitted by the Merger
Agreement) to (i) solicit, initiate or knowingly encourage the submission of,
any inquiries, proposals or offers relating to an Acquisition Proposal, (ii)
enter into any agreement with respect to an Acquisition Proposal (other than
Wyndham to the extent permitted under the Merger Agreement) or (iii) enter
into or participate in any discussions or negotiations regarding, or furnish
any person any information with respect to, or take any other action to
knowingly facilitate any inquiries or the making of any proposal that
constitutes, or would reasonably be expected to lead to, an Acquisition
Proposal. Subject to certain conditions and exceptions, CF Securities and the
Wyndham Management Stockholders are also not permitted to offer for sale,
tender, transfer, encumber or otherwise dispose of, deposit into a voting
trust, enter into a voting agreement with respect to, or grant any proxy or
power of attorney with respect to, or enter into any contract, option or other
arrangement or understanding with respect to the disposition of, any or all of
their Wyndham Common Stock or take any action that would make any
representation or warranty of such stockholders untrue or have the effect of
preventing or disabling such stockholders from performing such stockholders'
obligations under the Proxy Agreement. The covenants and agreements in the
Proxy Agreement terminate upon the expiration of the Proxy Term. The Proxy
Term will end on the earliest to occur of (i) the termination of the Merger
Agreement by Wyndham to enter into a Superior Proposal Agreement, (ii) the
Effective Time, (iii) the termination of the Merger Agreement due to the
failure of the Merger to be consummated by December 16, 1997, or (iv) 30 days
after termination of the Merger
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Agreement for any other reason, except that, in the case of the Wyndham
Management Stockholders only, if the Merger Agreement is terminated on account
of a Superior Proposal Agreement, the Proxy Term will not end until December
7, 1997, if the Merger Agreement is so terminated prior to November 7, 1997,
or 30 days following such termination, if such termination occurs on or after
November 7, 1997. Notwithstanding any other provision of the Proxy Agreement,
none of such provisions will prevent the Wyndham Management Stockholders or
any designees of CF Securities who serve on the Board of Directors of Wyndham
or who are officers of Wyndham from taking any action, subject to the Merger
Agreement, while acting in such capacity. In addition, Harlan R. Crow has
granted Patriot REIT a revocable proxy as to 100 shares of Wyndham Common
Stock held personally by him on substantially the same terms as the proxy
described above.
TRANSFER RESTRICTION AGREEMENT
Pursuant to the Transfer Restriction Agreement between Bedrock and Old
Patriot REIT, Bedrock may not sell or otherwise dispose of its 2,276,055
shares of Wyndham Common Stock without the consent of Patriot REIT, which
consent may not be unreasonably withheld or delayed. The Transfer Restriction
Agreement, which is intended to aid in assuring the expected tax treatment of
the Merger, terminates upon the expiration of the Proxy Term.
STANDSTILL AGREEMENT
Pursuant to the Standstill Agreement, CF Securities agreed that, with
certain exceptions, during the Standstill Term, neither CF Securities nor any
of its affiliates will, without the prior written consent of Patriot REIT,
directly or indirectly purchase or otherwise acquire, agree to acquire or
become the beneficial owner of, any additional Voting Stock. In addition, CF
Securities agreed that neither it nor any of its affiliates will, without the
prior written consent of Patriot REIT, directly or indirectly transfer any
shares of Voting Stock owned by them as of the date of the Standstill
Agreement or acquired thereafter with certain exceptions, including transfers
made in compliance with a right of first refusal in favor of Patriot REIT and
its designees, transfers to affiliates and charitable entities, pledges to
lenders, transfers pursuant to tender offers recommended by the Board of
Directors of Patriot REIT, transfers pursuant to registrations under the
Registration Rights Agreement and transfers of less than 1% in any 30 day
period pursuant to brokers' transactions under Rule 144 under the Securities
Act. Pursuant to the Standstill Agreement, CF Securities agreed that, during
the Standstill Term, neither it nor any of its affiliates will directly or
indirectly, or will solicit, request, advise, assist or encourage others
directly or indirectly, to (i) form or join or participate in a "partnership,
limited partnership, syndicate or other group" within the meaning of Section
13(d)(3) of the Exchange Act with respect to shares of Voting Stock or deposit
any Voting Stock in a voting trust, (ii) solicit proxies or written consents
of shareholders with respect to Voting Stock or make or participate in any
"solicitation" of any "proxy" (as such terms are defined in Rules 14a-1 and
14a-11 under the Exchange Act) to vote any shares of Voting Stock, or become a
"participant" in any election contest with respect to Patriot REIT or Wyndham
International, (iii) seek to call or to request the call of a special meeting
of the shareholders of Patriot REIT or Wyndham International or seek to make
or make a stockholder proposal at any meeting of stockholders of Patriot REIT
or Wyndham International, (iv) commence or announce any intention to commence
any tender offer for any shares of Voting Stock or file any Schedule 13D with
respect to Voting Stock (other than certain permitted Schedule 13D filings),
(v) make a proposal or bid with respect to, or publicly make or disclose any
proposal or bid with respect to, the acquisition of any substantial portion of
the assets of Patriot REIT or Wyndham International or of all or any portion
of the outstanding Voting Stock, or any merger, consolidation, other business
combination, restructuring, recapitalization or other business combination
involving Patriot REIT or Wyndham International, (vi) otherwise act alone or
in concert with others to seek to control or influence in any manner the
management, the Boards of Directors of Patriot REIT or Wyndham International
or the business, operations or affairs of Patriot REIT or Wyndham
International (other than with respect to an affiliate in such affiliate's
capacity as a director of Patriot REIT or Wyndham International at any meeting
of the Board of Directors of Patriot REIT or Wyndham International), (vii)
subject to certain exceptions, commence, join in or in any way participate in
any action, suit or proceeding of any kind, or directly or indirectly support
or encourage any administrative or investigative action or proceeding of any
nature against
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or involving Patriot REIT or Wyndham International or any of their respective
subsidiaries or officers or directors, or (viii) arrange or in any way
participate in any financing for any transaction referred to in the foregoing
clauses (i) through (vii) above, or (ix) publicly seek a waiver of the
foregoing restrictions.
The Standstill Term will end on the date which is 18 months following the
first date upon which any two of Paul A. Nussbaum, James D. Carreker and Anne
L. Raymond no longer actively serve as senior executive officers of Patriot
REIT or Wyndham International.
VOTING AGREEMENTS
General. Pursuant to the Voting Agreements, the Post-Merger Management
Stockholders agreed that, from April 14, 1997 until October 1, 2007, whenever
there shall be submitted to the stockholders of Patriot REIT or Wyndham
International nominees for election to the Patriot REIT Board or the Wyndham
International Board, as the case may be, the Post-Merger Management
Stockholders shall vote, or to cause to be voted, all of the shares of Patriot
REIT Common Stock and Wyndham International Common Stock then held by the
Post-Merger Management Stockholders, whether beneficially or of record, in
favor of such nominees designated by Patriot REIT or Wyndham International or
the Patriot REIT Board or the Wyndham International Board, as the case may be,
and, unless otherwise requested by Patriot REIT or Wyndham International, as
the case may be, not in favor of any other nominees.
Director Nominations. Pursuant to the Voting Agreements, from April 14, 1997
until the first date on which CF Securities does not beneficially own at least
five percent (5%) of the lesser of (x) the sum of (i) the number of then
outstanding Paired Shares and (ii) the number of then outstanding shares of
Series A Preferred Stock, or (y) the sum of (i) the number of Paired Shares
outstanding immediately after the Merger and (ii) the number of shares of
Series A Preferred Stock outstanding immediately after the Merger (the lesser
of (x) and (y) being the "Sum") (provided, however, that in the event the
Standstill Agreement is no longer in effect, then the Sum shall be calculated
in the manner prescribed by (x), irrespective of the number of shares computed
pursuant to (y)), each of Patriot REIT and Patriot Operating Company agreed
that, if at the time thereof Harlan Crow or a designee of CF Securities is not
a director of such corporation, (i) to propose as a nominee for election to
the Board of Directors of such corporation a designee of CF Securities (which
need not be the same individual in each case) (a "Designee"), (ii) to include
the name of the applicable Designee as a nominee in its proxy card, (iii) to
recommend the election of the applicable Designee to its stockholders (if any
such recommendation is made by its Board of Directors as to any other
nominee), (iv) to solicit proxies on behalf of the Designee to the same extent
proxies are solicited on behalf of any other nominee for election to the Board
of Directors, and (v) to cause the attorneys-in-fact named in the proxy cards
to vote the shares in respect of which proxies are given for the election of
the Designee as a director unless such proxy cards give contrary instructions.
AGREEMENT WITH RESPECT TO AMENDMENTS
Wyndham, CF Securities and a Crow Family Entity (on behalf of the parties to
the Omnibus Purchase and Sale Agreement) have entered into an agreement
pursuant to which they have agreed not to amend the material terms of the
Merger and the Related Transactions and the Crow Assets Acquisition without
each other's prior written consent.
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PROPOSAL TO APPROVE THE AMENDMENT TO THE PAIRING AGREEMENT
(FOR PATRIOT REIT AND PATRIOT OPERATING COMPANY STOCKHOLDERS ONLY)
At the Patriot Special Meetings, the stockholders of Patriot REIT and the
stockholders of Patriot Operating Company, respectively, will be asked to
consider and vote upon a proposal to amend the Pairing Agreement.
Under the terms of the Merger Agreement, it is a condition to the obligation
of each of Patriot REIT and Wyndham to consummate the Merger and the Related
Transactions that the Pairing Agreement Amendment Proposal be approved. The
affirmative vote of a majority of the issued and outstanding shares of each of
the Patriot REIT Common Stock and the Patriot Operating Company Common Stock
is required to approve the Pairing Agreement Amendment Proposal. See "The
Meetings of Stockholders--Patriot Special Meetings."
Under the terms of the Stock Purchase Agreement, at the Stock Purchase
Closing, which is expected to occur immediately prior to the closing of the
Merger, Patriot REIT and Patriot Operating Company will issue to CF Securities
a combination of Paired Shares and shares of Series A Preferred Stock, which,
under certain circumstances and subject to certain limitations, will be
convertible into Paired Shares. See "The Merger and Subscription--Terms of the
Stock Purchase." Under the Pairing Agreement, neither Patriot REIT nor Patriot
Operating Company currently may issue shares of Patriot REIT Common Stock and
Patriot Operating Company Common Stock or shares of Preferred Stock that are
convertible into Paired Shares unless provision has been made for the
simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of Equity Stock of the other company and
for the pairing of such shares. Accordingly, Patriot REIT and Patriot
Operating Company have proposed to amend the Pairing Agreement to provide that
each of Patriot REIT and Wyndham International may issue shares of capital
stock of any class or series (other than Patriot REIT Common Stock and Wyndham
International Common Stock), irrespective of whether such shares are
convertible into Paired Shares, without making provision for the simultaneous
issuance or transfer to the same person of the same number of shares of that
same class or series of capital stock of the other company and for the pairing
of such shares. See "Description of Capital Stock--The Amended Pairing
Agreement."
If the Pairing Agreement Amendment Proposal is not approved by the
stockholders of Patriot REIT and Patriot Operating Company, the Pairing
Agreement Amendment will not become effective and the Merger and the Related
Transactions will not be consummated.
Stockholders of Patriot REIT and Patriot Operating Company should carefully
read the form of the Pairing Agreement Amendment attached as Annex E to this
Joint Proxy Statement/Prospectus.
THE BOARDS OF DIRECTORS OF PATRIOT REIT AND PATRIOT OPERATING COMPANY
RECOMMEND THAT THE PAIRING AGREEMENT AMENDMENT PROPOSAL BE ADOPTED AND
THEREFORE RECOMMEND A VOTE "FOR" THIS PROPOSAL.
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PROPOSALS TO APPROVE THE AMENDMENT AND RESTATEMENT OF THE PATRIOT REIT
AND PATRIOT OPERATING COMPANY CHARTERS
(FOR PATRIOT REIT AND PATRIOT OPERATING COMPANY STOCKHOLDERS ONLY)
At the Patriot REIT Special Meeting, the stockholders of Patriot REIT will
be asked to consider and vote upon a proposal to amend and restate the Patriot
REIT Charter, and at the Patriot Operating Company Special Meeting, the
stockholders of Patriot Operating Company will be asked to consider and vote
upon a proposal to amend and restate the Patriot Operating Company Charter.
Under the terms of the Merger Agreement, it is a condition to the obligation
of each of Patriot REIT, Patriot Operating Company and Wyndham to consummate
the Merger and the Related Transactions that both the Patriot REIT Charter
Amendment Proposal and the Patriot Operating Company Charter Amendment
Proposal be approved. The affirmative vote of a majority of the issued and
outstanding shares of each of Patriot REIT Common Stock and Patriot Operating
Company Common Stock is required to approve each of the Patriot REIT Charter
Amendment Proposal and the Patriot Operating Company Charter Amendment
Proposal, respectively. See "The Meetings of Stockholders--Patriot Special
Meetings."
The Merger Agreement provides that the Patriot Operating Company Charter
Amendment Proposal will change the name of Patriot Operating Company to
"Wyndham International, Inc." In addition, the Restated Charters will lower
the threshold of beneficial ownership of Equity Stock from 9.8% (the "Current
Ownership Limit") to 8.0% (except with respect to Look-Through Entities, for
which an ownership limit of 9.8% will remain) (the "Ownership Limit").
Further, the Patriot Board and the Patriot Operating Company Board deemed it
advisable and in the best interests of the stockholders of Patriot REIT and
Patriot Operating Company that the Ownership Limit be waived, as permitted
thereby, to permit CF Securities to receive a combination of Paired Shares and
shares of Series A Preferred Stock that would exceed the Ownership Limit. In
connection with the waiver of such Ownership Limit, the Patriot REIT Board and
the Patriot Operating Company Board deemed it advisable and in the best
interests of the stockholders of Patriot REIT and Patriot Operating Company
that the Current Ownership Limit contained in the Patriot REIT Charter and
Patriot Operating Company Charter be decreased to the Ownership Limit in order
to reduce the risk that the actual or constructive ownership of Equity Stock
by an individual or entity could cause Patriot REIT to fail to maintain its
qualification as a REIT. See "Risk Factors--REIT Tax Risks--Dependence on
Qualification as a REIT."
Pursuant to the terms of the Merger Agreement, Patriot REIT and Patriot
Operating Company have agreed to enter into the Cooperation Agreement prior to
consummation of the Merger. The Cooperation Agreement provides that the
Patriot Companies shall take any and all action necessary to cause their
respective charters and bylaws to be amended appropriately to effect the
provisions of the Cooperation Agreement. Accordingly, the terms of the
Restated Charters contain provisions to effect certain terms of the
Cooperation Agreement, including provisions relating to the issuance of paired
and unpaired equity by Patriot REIT and Wyndham International. See
"Description of Capital Stock--The Cooperation Agreement" and "Comparison of
Stockholders Rights." The terms of the Restated Charters also provide, unlike
the Patriot Charters, that the respective Boards of Directors of the companies
may amend or repeal the Restated Bylaws.
Certain existing provisions of the Patriot REIT Charter, the Patriot REIT
Bylaws, the Patriot Operating Company Charter and the Patriot Operating
Company Bylaws that will continue in the Restated Charters and the Restated
Bylaws could have a potential anti-takeover effect on Patriot REIT and Wyndham
International following the Merger. The ownership limit provisions, staggered
board provision, the fact that directors are removable only for cause, the
fact that stockholders may not call a special meeting of stockholders, the
fact that stockholders may act without a meeting of stockholders only by
unanimous written consent, the vote required for a business combination with a
related person, the limitation of the power to fill board vacancies to the
remaining directors, the vote required for the stockholders to amend the
bylaws, and the presence of advance-notice bylaw provisions with respect to
stockholder proposals and director nominations, could have the effect of
making it more difficult for a third party to acquire control of Patriot REIT
or Wyndham International following the Merger, including certain acquisitions
that stockholders may deem to be in their best interests. In addition,
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the Current Ownership Limit will be decreased to the Ownership Limit (except
with respect to Look-Through Entities), which could also have the effect of
making the acquisition of control more difficult for a third party. For a more
detailed discussion of the existing certificates of incorporation of Patriot
REIT and Patriot Operating Company and the proposed amendments to the
certificates of incorporation of Patriot REIT and Patriot Operating Company,
see "Description of Capital Stock--Certain Provisions of the Restated Charters
and Restated Bylaws" and "Comparison of Stockholders Rights."
If the Patriot REIT Charter Amendment Proposal and the Patriot Operating
Company Charter Amendment Proposal are approved by the stockholders of Patriot
REIT and Patriot Operating Company, respectively, the Restated Charters will
be filed with the Delaware Secretary of State immediately prior to the Merger
and, pursuant to the Merger Agreement, the Restated Charter of Patriot REIT
will become the charter of the surviving corporation in the Merger.
If the Patriot REIT Charter Amendment Proposal and the Patriot Operating
Company Charter Amendment Proposal are not approved by the stockholders of
Patriot REIT and Patriot Operating Company, respectively, the Patriot REIT
Charter Amendment Proposal and the Patriot Operating Company Charter Amendment
Proposal will not become effective and the Merger and the Related Transactions
will not be consummated.
Stockholders of Patriot REIT and Patriot Operating Company should carefully
read the forms of Restated Charters attached as Annexes F and G and to this
Joint Proxy Statement/Prospectus and the information under the heading
"Comparison of Stockholders Rights."
THE BOARD OF DIRECTORS OF PATRIOT REIT RECOMMENDS THAT THE PATRIOT REIT
CHARTER AMENDMENT PROPOSAL BE APPROVED AND THEREFORE RECOMMENDS A VOTE "FOR"
THIS PROPOSAL. THE BOARD OF DIRECTORS OF PATRIOT OPERATING COMPANY RECOMMENDS
THAT THE PATRIOT OPERATING COMPANY CHARTER AMENDMENT PROPOSAL BE APPROVED AND
THEREFORE RECOMMENDS A VOTE "FOR" THIS PROPOSAL.
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OWNERSHIP OF WYNDHAM COMMON STOCK PRIOR TO THE MERGER
The following table sets forth as of November 3, 1997 information regarding
the beneficial ownership of shares of Wyndham Common Stock for (i) each of the
Wyndham's "named executive officers," (ii) each Wyndham director, (iii) all
Wyndham directors and executive officers as a group, and (iv) each person
known by Wyndham who was on such date the beneficial owner of more than five
percent of the outstanding Wyndham Common Stock.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT
NAME OF EACH BENEFICIAL OWNER (1) OWNED OF CLASS
- ---------------------------------- ------------ --------
<S> <C> <C>
CF Securities, L.P.(2)(3)(4)......................... 9,447,745 43.70%
Harlan R. Crow(3)(4)................................. 100 *
James D. Carreker(4)(5)(6)........................... 1,554,777 7.13%
Leslie V. Bentley(4)(6)(7)........................... 472,057 2.18%
Anne L. Raymond(4)(6)................................ 460,151 2.12%
Stanley M. Koonce, Jr.(4)(6)......................... 468,001 2.16%
Carla S. Moreland(6)(8).............................. 48,063 *
Eric A. Danziger(9).................................. 381,234 1.76%
Bedrock(10).......................................... 2,276,055 10.53%
Daniel A. Decker(11)
Robert A. Whitman(11)
Susan T. Groenteman(12).............................. 31,250 *
James C. Leslie(13).................................. 3,000 *
Philip J. Ward(14)................................... 563 *
Directors and executive officers as a group(6)(15
persons)............................................ 14,925,918(15) 67.26%
</TABLE>
- --------
* Less than 1%.
(1) The address of each beneficial owner, with the exception of CF
Securities, L.P., Bedrock Partners, L.L.P., Ms. Groenteman, Mr. Leslie
and Mr. Ward, is 1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207.
(2) The address of CF Securities, L.P. is 2001 Ross Avenue, Dallas, TX 75201.
(3) Mr. Crow directly holds 100 shares of Wyndham Common Stock. Mill Spring
Holdings, Inc. ("Mill Spring") is the general partner of CF Securities,
L.P. Mr. Crow is a principal stockholder of Mill Spring and its sole
director. Mr. Crow disclaims beneficial ownership of all Wyndham Common
Stock held by CF Securities, L.P.
(4) CF Securities, L.P., Messrs. Carreker, Bentley and Koonce and Ms. Raymond
have agreed, pursuant to the Proxy Agreement, to vote the shares of
Wyndham Common Stock beneficially owned by them in favor of the Merger
Proposal. Mr. Harlan R. Crow has also agreed to vote the 100 shares of
Wyndham Common Stock directly owned by him in favor of the Merger
Proposal. See "Certain Related Agreements--Proxy Agreement."
(5) Mr. Carreker directly holds 1,173,416 shares of Wyndham Common Stock,
including 100 shares issued to Mr. Carreker in the initial formation of
Wyndham. Shares listed in the table include 77,671 shares held in a trust
for which Mr. Carreker is the special trustee and has full voting rights.
Mr. Carreker disclaims beneficial ownership of all Wyndham Common Stock
held in the trust. On February 11, 1997, Wyndham Employees, Ltd. ("WEL"),
an employee benefit plan of Wyndham, distributed (the "WEL Distribution")
its holdings of Wyndham Common Stock to the participants in WEL. Mr.
Carreker is a director and principal stockholder of Wyndham Hotel
Management Corporation ("WHMC"), which is the corporate general partner
of WEL. Shares listed in the table include 120,690 shares held by WHMC,
including 6,468 shares received by WHMC in the WEL Distribution. Mr.
Carreker disclaims beneficial ownership of all Wyndham Common Stock held
by WHMC beyond his percentage ownership therein.
(6) Includes for Mr. Carreker, Mr. Bentley, Ms. Raymond, Mr. Koonce, Ms.
Moreland and all directors and officers as a group, Existing Wydham
Options to purchase 183,000, 80,000, 80,000 80,000, 37,500, and 574,100
shares of Wyndham Common Stock. The Existing Wyndham Options will fully
vest and become
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exercisable in connection with the Merger for Paired Shares. See "The
Merger and Subscription--Interests of Certain Officers, Directors and
Stockholders of Wyndham--Wyndham Stock Options."
(7) Includes 61,680 shares held in trusts for which Mr. Bentley is the special
trustee and has full voting rights. Mr. Bentley disclaims beneficial
ownership of all Wyndham Common Stock held in the trusts.
(8) Includes 9,963 shares received by Ms. Moreland in the WEL Distribution.
(9) Mr. Danziger resigned from Wyndham in July 1996.
(10) The address of Bedrock is 2200 Ross Avenue, Suite 4200 West, Dallas, Texas
75201. Bedrock owns its shares of Wyndham Common Stock through Wynopt
Investment Partnership, L.P. and Wynopt Investment Partnership Level II,
L.P., the former of which has agreed not to sell or otherwise dispose of
its shares of Wyndham Common Stock without the consent of Patriot REIT,
which consent may not be unreasonably withheld or delayed. See "Certain
Related Agreements--Transfer Restriction Agreement."
(11) Robert A. Whitman and Daniel A. Decker are principals of Hampstead Group
L.L.C. ("Hampstead"), an affiliate of Bedrock Partners. Mr. Whitman and
Mr. Decker directly hold no shares of Wyndham Common Stock. Messrs.
Whitman and Decker disclaim beneficial ownership of all Wyndham Common
Stock held by Bedrock Partners, L.L.P.
(12) The address of Ms. Groenteman is 2001 Ross Avenue, Dallas, Texas 75201.
(13) The address of Mr. Leslie is 6750 LBJ Freeway, Suite 1100, Dallas, Texas
75240.
(14) The address of Mr. Ward is 900 Cottage Road, S312, Hartford, Connecticut
06152.
(15) Excludes shares held by Mr. Danziger, who resigned from Wyndham in July
1996.
Certain of the executive officers of Wyndham, including Messrs. Carreker,
Bentley and Koonce and Ms. Raymond, have advised the Patriot Companies that
they intend to make a Cash Election to receive Cash Consideration for a
substantial portion of the shares of Wyndham Common Stock held by them.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of all material United States federal
income tax consequences of the Merger and the Related Transactions to Patriot
REIT, Patriot Operating Company and Wyndham and their respective U.S.
Stockholders (as defined below in "--Federal Income Taxation of Holders of
Paired Shares--Taxation of Taxable U.S. Stockholders") as well as certain
other tax considerations for U.S. holders of Paired Shares. The following
discussion is based upon current provisions of the Code, existing, temporary
and final regulations thereunder and current administrative rulings and court
decisions, all of which are subject to change, possibly on a retroactive
basis. No attempt has been made to comment on all United States federal income
tax consequences of the Merger and the Related Transactions that may be
relevant to stockholders of Patriot REIT, Patriot Operating Company and
Wyndham. The tax discussion set forth below is included for general
information only. It is not intended to be, nor should it be construed to be,
legal or tax advice to a particular stockholder of Patriot REIT, Patriot
Operating Company and Wyndham.
THE FOLLOWING DISCUSSION MAY NOT APPLY TO PARTICULAR CATEGORIES OF HOLDERS
OF SHARES OF PATRIOT REIT COMMON STOCK, PATRIOT OPERATING COMPANY COMMON STOCK
OR WYNDHAM COMMON STOCK SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS
INSURANCE COMPANIES, FINANCIAL INSTITUTIONS, BROKER-DEALERS, TAX-EXEMPT
ORGANIZATIONS, NON-U.S. STOCKHOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED
PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS
COMPENSATION. STOCKHOLDERS OF PATRIOT REIT, PATRIOT OPERATING COMPANY AND
WYNDHAM ARE URGED TO CONSULT THEIR TAX ADVISORS TO DETERMINE THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER AND THE RELATED TRANSACTIONS, INCLUDING ANY STATE,
LOCAL OR OTHER TAX CONSEQUENCES OF THE MERGER AND THE RELATED TRANSACTIONS.
TAX CONSEQUENCES OF THE MERGER
Goodwin, Procter & Hoar llp counsel for Patriot REIT, has delivered an
opinion to Patriot REIT and Wyndham substantially to the effect that, on the
basis of facts, representations and assumptions set forth in such opinion, the
Merger and the Stock Purchase will be treated for United States federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Code. Accordingly, no gain or loss will be recognized by Wyndham as a result
of the Merger. Stockholders of Wyndham will recognize gain, but not loss, on
the exchange of shares of Wyndham Common Stock for Paired Shares and/or cash
pursuant to the Merger in an amount equal to the lesser of (a) the fair market
value of the Wyndham International Common Stock as of the Effective Time that
they receive, plus the amount of cash received in connection with the Merger
(pursuant to a Cash Election or in lieu of fractional shares of Wyndham
International Common Stock) (such value and cash received by a stockholder is
referred to herein as the stockholder's "boot") or (b) the amount by which the
fair market value of the Paired Shares as of the Effective Time, plus the
amount of cash received in connection with the Merger, exceeds the
stockholder's adjusted tax basis in the Wyndham Common Stock exchanged
therefor. Any such gain will be characterized as capital gain (assuming the
Wyndham Common Stock exchanged was a capital asset in the hands of the
stockholder) unless the boot received has the effect of the distribution of a
dividend, in which case the gain would be treated as a dividend to the extent
of the stockholder's ratable share of Wyndham's undistributed earnings and
profits (see below). Patriot Operating Company's estimate of the value of a
share of Wyndham International Common Stock is discussed below. No gain or
loss will be recognized by Patriot REIT as a result of the Merger or the Stock
Purchase. Neither Patriot Operating Company, which is not a constituent
corporation in the Merger, nor the stockholders of Patriot REIT and Patriot
Operating Company will recognize gain or loss as a result of the Merger or the
Stock Purchase.
The opinion of Goodwin, Procter & Hoar llp is based, in part, upon a
representation by the management of Wyndham to the effect that, to the best
knowledge of Wyndham's management, there is no plan or intention on the part
of the stockholders of Wyndham to dispose of a number of Paired Shares or
Series A Preferred Stock
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received in the Merger that would reduce the aggregate value of the Patriot
REIT Common Stock or Series A Preferred Stock held by Wyndham stockholders to
less than 50% of the value of the Wyndham Common Stock as of the Effective
Time, and upon counsel's assumption to the effect that such representation is
correct as if made without such "best knowledge" qualification. The opinion
referred to above has been filed as an exhibit to the Registration Statement,
of which this Joint Proxy Statement/Prospectus is a part.
In general, the determination as to whether the gain recognized by a Wyndham
stockholder in the Merger will be treated as capital gain or dividend income
depends upon whether and to what extent the transactions related to the Merger
will be deemed to reduce the stockholder's percentage stock ownership of
Patriot REIT following the Merger. For purposes of that determination, the
stockholder is treated as if it first exchanged all of its shares of Wyndham
Common Stock solely for Patriot REIT Common Stock and then Patriot REIT
immediately redeemed (the "deemed redemption") a portion of such Patriot REIT
Common Stock in exchange for the boot the stockholder actually received. If,
under Section 302 of the Code, the deemed redemption is "not essentially
equivalent to a dividend" with respect to the stockholder then any gain
recognized by the stockholder in the transaction will be capital gain. In
general, in order for the deemed redemption to be "not essentially equivalent
to a dividend," the deemed redemption must result in a "meaningful reduction"
in the stockholder's deemed percentage stock ownership of Patriot REIT
following the Merger. In general, that determination requires a comparison of
(i) the percentage of the outstanding stock of Patriot REIT the stockholder
owned or is considered to have owned immediately before the deemed redemption
and (ii) the percentage of the outstanding stock of Patriot REIT the
stockholder owns immediately after the deemed redemption. Stock owned for this
purpose includes stock actually owned as well as stock treated as being owned
under the constructive ownership rules of Section 318 of the Code. The IRS has
indicated in a published ruling that, in the case of a small minority holder
of a publicly held corporation who exercises no control over corporate
affairs, a reduction in the holder's proportionate interest in the corporation
from .0001118% to .0001081% would constitute a meaningful reduction. In
addition, the deemed redemption will not be essentially equivalent to a
dividend if it is "substantially disproportionate." The deemed redemption will
be "substantially disproportionate" with respect to a Wyndham stockholder if
the percentage of the outstanding voting stock of Patriot REIT (following the
Merger and the deemed redemption) actually owned by the stockholder and
constructively owned by the stockholder under the constructive ownership rules
of Section 318 of the Code (treating the Patriot REIT Common Stock acquired by
Patriot REIT in the deemed redemption as not outstanding) is less than 80% of
the percentage of the outstanding voting stock of Patriot REIT actually and
constructively owned by the stockholder following the Merger but immediately
before the deemed redemption (treating the Patriot REIT Common Stock acquired
by Patriot REIT in the deemed redemption as outstanding).
In applying the foregoing tests, under the attribution rules of Section 318
of the Code, a stockholder is deemed to own (i) stock owned and, in some
cases, constructively owned by certain family members, by certain estates and
trusts of which the stockholder is a beneficiary, and by certain affiliated
entities, and (ii) stock subject to an option actually or constructively owned
by the stockholder or such other persons. As these rules are complex, each
stockholder that believes it may be subject to these rules should consult its
tax advisor.
Wyndham stockholders should be aware that the Relief Act recently modified
the capital gain rates applicable to individuals, trusts and estates. See "--
Federal Income Taxation of Holders of Paired Shares--Taxation of Taxable U.S.
Stockholders."
The aggregate tax basis of the shares of Patriot REIT Common Stock received
by a Wyndham stockholder in the Merger (including any fractional shares of
Patriot REIT Common Stock for which cash is received) will be the same as the
aggregate tax basis of his or her shares of Wyndham Common Stock exchanged
therefor, increased by any gain recognized in the transaction (whether capital
gain or dividend income), and decreased by (i) the fair market value of the
Wyndham International Common Stock received and (ii) any cash received in
connection with the Merger pursuant to a Cash Election or in lieu of
fractional shares of Wyndham International Common Stock. The holding period
for shares of Patriot REIT Common Stock received by a stockholder will include
the period that such shares of Wyndham Common Stock were held by the holder,
provided such shares were held as a capital asset at the Effective Time.
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If a Wyndham stockholder has differing bases and/or holding periods in
respect of his or her shares of Wyndham Common Stock, he or she should consult
his or her tax advisor prior to the exchange with regard to computing his or
her gain with respect to particular blocks of Wyndham Common Stock and
identifying the particular bases and/or holding periods of the particular
shares of Patriot REIT Common Stock he or she receives in the exchange.
The aggregate tax basis of the shares of Wyndham International Common Stock
received by a Wyndham stockholder in the Merger will be equal to the fair
market value of the Wyndham International Common Stock as of the Effective
Time. The holding period for shares of Wyndham International Common Stock
received by a stockholder will begin on the day it is distributed.
Cash received in lieu of fractional shares of Patriot REIT Common Stock will
be treated as received in redemption for such fractional interest, and gain or
loss will be recognized, measured by the difference between the amount of cash
received and the portion of the basis of the shares of Patriot REIT Common
Stock allocable to such fractional shares. Such gain or loss will constitute
capital gain or loss from the sale of stock if the stockholder holds its
Wyndham Common Stock as a capital asset at the Effective Time.
Under the terms of the Pairing Agreement, the Patriot Companies are
obligated to agree on the relative values of a share of Patriot REIT Common
Stock and a share of Wyndham International Common Stock that comprise a Paired
Share. As of the date of the mailing of this Joint Proxy Statement/Prospectus,
the companies have determined that the value of a share of Wyndham
International Common Stock should represent 5% of the value of a Paired Share.
There can be no assurance, however, that the IRS will agree with such
valuation or that these relative values will not have changed by the Effective
Time.
The Restated Charters generally provide that no individual or entity (other
than Look-Through Entities) may beneficially own or constructively own in
excess of 8.0% of the outstanding shares of any class or series of equity
stock of Patriot REIT or Wyndham International and that no Look-Through Entity
may beneficially own or constructively own in excess of 9.8% of the
outstanding shares of any class or series of Equity Stock of Patriot REIT or
Wyndham International. Paired Shares received by any Wyndham stockholder in
the Merger in excess of the applicable ownership limitation will be converted
into Excess Stock in accordance with the Excess Share Provisions of the
Restated Charters. See "Description of Capital Stock--Excess Stock" and "--
Certain Provisions of the Restated Charters and Restated Bylaws--Restrictions
on Ownership and Transfer." Although not entirely free from doubt, such Excess
Stock likely would be treated as "boot" in the same manner as cash received in
the Merger pursuant to a Cash Election for purposes of the foregoing rules.
The conclusion above that Wyndham will not recognize gain or loss as a
result of the Merger assumes that Patriot REIT makes an election pursuant to
IRS Notice 88-19 with respect to the Merger. Patriot will make the election
pursuant to IRS Notice 88-19 if such election is available. If Patriot REIT
failed to make the election (or it were no longer available) Wyndham would
recognize gain on the Merger notwithstanding that the Merger qualifies as a
"reorganization" within the meaning of Section 368(a) of the Code.
MERGER DIVIDEND
To maintain its qualification as a REIT, following the Merger, Patriot REIT
will be required to distribute the current and accumulated earnings and
profits of Wyndham (as determined for federal income tax purposes). The
distribution will be taken into account by Patriot REIT's taxable U.S.
Stockholders as ordinary income to the extent it is made out of current or
accumulated earnings and profits, and will not be eligible for the dividends
received deduction generally available for corporations. See "--Federal Income
Taxation of Holders of Paired Shares."
Wyndham has agreed that, at the Merger Closing, Wyndham will deliver to
Patriot REIT a statement of accumulated and current earnings and profits of
Wyndham (as determined for federal income tax purposes) as of a date not more
than thirty days prior to the Closing Date, together with evidence of such
accumulated and current earnings and profits of Wyndham (as determined for
federal income tax purposes) from Coopers &
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Lybrand L.L.P. in a form reasonably satisfactory to Patriot REIT, and a
statement of estimated accumulated and current earnings and profits of Wyndham
(as determined for federal income tax purposes) as of the Closing Date.
Wyndham further agreed that prior to the Closing Date, it will cause Coopers &
Lybrand L.L.P. to agree (i) to deliver to Patriot REIT, prior to December 25,
1997, a statement of accumulated and current earnings and profits of Wyndham
(as determined for federal income tax purposes) at the Effective Time and (ii)
that Patriot REIT shall be entitled to rely on such statement for purposes of
preparing and filing its federal, state, local and foreign tax returns
required to be filed by it, determining the amount of dividends to be paid to
stockholders and paying any taxes owed by it.
REIT QUALIFICATION
General
If certain detailed conditions imposed by the provisions of the Code are
met, entities such as Patriot REIT that invest primarily in real estate and
that otherwise would be treated for federal income tax purposes as
corporations generally are not taxed at the corporate level on their "real
estate investment trust taxable income" that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" on
earnings (i.e., at both the corporate and stockholder levels) that ordinarily
results from the use of corporations.
Prior to the consummation of the Merger, Patriot REIT has been and will
continue to be operated in a manner intended to allow it to qualify as a REIT.
Patriot REIT intends to operate following the Merger in a manner so that
Patriot REIT will continue to qualify as a REIT. If Patriot REIT fails to
qualify as a REIT in any taxable year, Patriot REIT will be subject to federal
income taxation as if it were a domestic corporation, and Patriot REIT's
stockholders will be taxed in the same manner as stockholders of ordinary
corporations. In this event, Patriot REIT could be subject to potentially
significant tax liabilities, and the amount of cash available for distribution
to stockholders would be reduced and possibly eliminated. Unless entitled to
relief under certain Code provisions, and subject to the discussion below
regarding Section 269B(a)(3) of the Code, Patriot REIT also would be
disqualified from re-electing REIT status for the four taxable years following
the year during which qualification was lost. Failure of Old Patriot to have
qualified as a REIT also could disqualify Patriot REIT as a REIT and/or
subject Patriot REIT to significant tax liabilities.
Patriot REIT's qualification and taxation as a REIT following the Merger
will depend upon Patriot REIT's continuing ability to meet, through actual
operating results, the income and asset requirements, distribution levels,
diversity of stock ownership and other requirements for qualification as a
REIT under the Code. Counsel has not reviewed and will not review Patriot
REIT's compliance with these tests on a continuing basis. Moreover,
qualification as a REIT involves the application of highly technical and
complex Code provisions for which there are only limited judicial or
administrative interpretations and the determination of various factual
matters and circumstances not entirely within Patriot REIT's control. The
complexity of these provisions is greater in the case of a REIT that owns
hotels and leases them to a corporation with which its stock is paired.
Accordingly, no assurance can be given that Patriot REIT will satisfy such
tests on a continuing basis following the Merger. See "Risk Factors--REIT Tax
Risks."
In connection with the mailing of this Joint Proxy Statement/Prospectus,
Goodwin, Procter & Hoar llp has rendered an opinion to the effect that (i) for
periods ending on or before the date of such opinion, Patriot REIT has
qualified to be treated as a REIT and (ii) for subsequent periods, including
periods following the Merger, Patriot REIT will be organized in conformity
with the requirements for qualification as a REIT and the proposed manner of
operations of Patriot REIT will enable Patriot REIT to continue to qualify as
a REIT. The opinion of Goodwin, Procter & Hoar llp has been filed as an
exhibit to the Registration Statement, of which the Joint Proxy
Statement/Prospectus is a part. This opinion is based on representations from
Patriot REIT regarding Old Patriot REIT's and Patriot REIT's compliance with
the requirements for REIT qualification, and is not binding on the IRS. Each
of Old Patriot REIT's and Patriot REIT's qualification as a REIT depends on
its having met or meeting, as the case may be, through actual operating
results, the various requirements for qualification as a REIT under the Code.
Counsel has not verified and will not verify the companies' compliance with
those tests.
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Accordingly, no assurance can be given that the IRS will not challenge the
status of Patriot REIT as a REIT prior to the Merger or the status of Patriot
REIT as a REIT following the Merger.
In rendering its opinion regarding REIT qualification, Goodwin, Procter &
Hoar llp has relied upon the representations of Patriot REIT that it will
distribute, with respect to the taxable year in which the Merger closes, all
earnings and profits inherited from Wyndham. If the IRS were to determine that
Wyndham's actual earnings and profits exceeded the amount distributed, Patriot
REIT would be disqualified as a REIT.
Paired Shares
Section 269B(a)(3) of the Code provides that if the shares of a REIT and a
non-REIT are paired, then the REIT and the non-REIT shall be treated as one
entity for purposes of determining whether either company qualifies as a REIT.
If Section 269B(a)(3) applied to Patriot REIT and Wyndham International, then
Patriot REIT would not be eligible to be taxed as a REIT. Section 269B(a)(3)
does not apply, however, if the shares of the REIT and the non-REIT were
paired on June 30, 1983 and the REIT was taxable as a REIT on June 30, 1983.
As a result of this "grandfathering" rule, Section 269B(a)(3) did not apply to
Cal Jockey for periods prior to the Cal Jockey Merger, and, by its terms, this
"grandfathering" rule continued to apply to Patriot REIT after the Cal Jockey
Merger and will continue to apply to Patriot REIT following the Merger. There
are, however, no judicial or administrative authorities interpreting this
"grandfathering" rule in the context of a merger or otherwise, and this
interpretation, as well as the opinion of Goodwin, Procter & Hoar llp
regarding Patriot REIT's qualification as a REIT, is based solely on the
literal language of the statute. Moreover, if for any reason Patriot REIT
failed to qualify as a REIT in 1983, the benefit of the "grandfathering" rule
would not be available to Patriot REIT, and Patriot REIT would not qualify as
a REIT for any taxable year. See "Risk Factors--REIT Tax Risks--Dependence on
Qualification as a REIT."
Potential Reallocation of Income
Due to the paired share structure, Patriot REIT, Patriot Operating Company,
Wyndham International, the Patriot REIT Partnership, the Patriot Operating
Company Partnership, and their respective subsidiary entities are and will be
controlled by the same interests. As a result, the IRS could, pursuant to
Section 482 of the Code, seek to distribute, apportion or allocate gross
income, deductions, credits or allowances between or among them if it
determines that such distribution, apportionment or allocation is necessary in
order to prevent evasion of taxes or to clearly reflect income. Patriot REIT
and Patriot Operating Company believe that all material transactions between
Patriot REIT and Wyndham International following the Merger, and among them
and/or their subsidiary entities, will be negotiated and structured with the
intention of achieving an arm's-length result. Patriot REIT and Patriot
Operating Company believe that all material transactions between them have
been similarly negotiated and structured with the intention of achieving an
arm's-length result. If true, the potential application of Section 482 of the
Code should not have a material effect on Patriot REIT or Wyndham
International following the Merger. There can be no assurance, however, that
the IRS will not challenge the terms of such transactions, or that such
challenge would not be successful.
Sale of Land by Patriot REIT
The sale following the Cal Jockey Merger of certain land previously owned by
Cal Jockey to an affiliate of PaineWebber Incorporated (the "PaineWebber Land
Sale") was structured to qualify as a tax-deferred like-kind exchange. There
can be no assurances, however, that such transaction will qualify as a like-
kind exchange. If and to the extent the sale does not qualify as a tax-
deferred like-kind exchange, any capital gains recognized by Patriot REIT will
be taxed to Patriot REIT at applicable capital gains rates, unless Patriot
REIT distributes such gains to its shareholders. To the extent that the gain
does not qualify for capital gains treatment, the gain will be combined with
Patriot REIT's other taxable income, 95% of which must be distributed each
year in order to maintain Patriot REIT's status as a REIT. Notwithstanding the
foregoing, in the event that the property in the PaineWebber Land Sale
constituted "dealer property," then the sales could not qualify as a like-kind
exchange, the gain likely would be subject to a 100% tax, and the amount of
gain would constitute nonqualifying income that likely would disqualify
Patriot REIT as a REIT. Although Patriot REIT believes that the PaineWebber
Land
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Sale did not constitute a sale of dealer property, whether or not such sale
constituted a sale of dealer property is a factual determination not
susceptible of legal opinion, and Patriot REIT did not receive opinions from
counsel on such determination. As a result, the opinion rendered by Goodwin,
Procter & Hoar llp regarding Patriot REIT's qualification as a REIT
necessarily relies on representations from Patriot REIT to the effect that the
sale did not constitute the sale of dealer property.
Classification of Patriot REIT Partnership as a Publicly Traded Partnership
Section 7704 of the Code treats certain "publicly traded partnerships" as
corporations. If the Patriot REIT Partnership were taxed as a corporation
under these rules, Patriot REIT would be disqualified as a REIT. A partnership
is a publicly traded partnership if interests in such partnership are either
traded on an established securities market or are readily tradable on a
secondary market (or the substantial equivalent thereof). Interests in the
Patriot REIT Partnership have not and will not be traded on an established
securities market. Currently, the Patriot REIT Partnership relies on
restrictions on transfers and redemptions recently included in its partnership
agreement in order to avoid being taxed as a corporation under Section 7704 of
the Code. Prior to such amendments, the Patriot REIT Partnership relied on an
exemption from the publicly traded partnership rules based on the nature of
its income as well as a safe harbor based on the number of its partners. There
can be no assurance that efforts to avoid taxation as a corporation under
these provisions have been or will be successful.
Built-In Gain Tax
If Patriot REIT recognizes gain on the disposition of an asset acquired from
Wyndham during the ten-year period beginning at the Effective Time, then to
the extent of the asset's "built-in gain" (i.e., the excess of the fair market
value of such asset at the Effective Time over its then tax basis), Patriot
REIT will be subject to tax on such gain at the highest regular corporate rate
applicable, pursuant to Treasury Regulations not yet promulgated. Patriot REIT
would have to distribute 95% of the excess of the amount of recognized built-
in gain over the amount of tax paid in order to maintain its qualification as
a REIT. The foregoing assumes that Patriot REIT makes an election pursuant to
IRS Notice 88-19 with respect to the Merger. Patriot will make the election
pursuant to IRS Notice 88-19 if such election is available. See "--Tax
Consequences of the Merger."
EFFECTS OF COMPLIANCE WITH REIT REQUIREMENTS
Operating income derived from hotels or a racetrack does not constitute
qualifying income under the REIT requirements. Accordingly, all of Patriot
REIT's hotels, other than hotels held by taxable entities in which Patriot
REIT does not hold voting control (currently the Crowne Plaza Ravinia Hotel
and the Marriott WindWatch Hotel), have been leased to Lessees and Patriot
Operating Company, and Patriot REIT will continue to lease such hotels after
the Merger. Similarly, Patriot REIT has subleased the land underlying the
Racecourse and leased the related improvements to Patriot Operating Company.
Rent derived from such leases will be qualifying income under the REIT
requirements, provided several requirements are satisfied. Among other
requirements, a lease may not have the effect of giving Patriot REIT a share
of the net income of the lessee, and the amount of personal property leased
under the lease must not exceed a defined, low level. Patriot REIT also may
not provide services, other than customary services and (beginning in 1998) de
minimis non-customary services, to the Lessees or their subtenants. In
addition, the leases must also qualify as "true" leases for federal income tax
purposes (as opposed to service contracts, joint ventures or other types of
arrangements). There are, however, no controlling Treasury Regulations,
published rulings, or judicial decisions that discuss whether leases similar
to the leases constitute "true" leases. Therefore, there can be no complete
assurance that the IRS will not successfully assert a contrary position.
Payments under a lease will not constitute qualifying income for purposes of
the REIT requirements if Patriot REIT owns, directly or indirectly, 10% or
more of the ownership interests in the relevant lessee. Constructive ownership
rules apply, such that, for instance, Patriot REIT is deemed to own the assets
of stockholders who own 10% or more in value of the stock of Patriot REIT. The
Charters are therefore designed to prevent a stockholder of Patriot REIT from
owning REIT stock or Patriot Operating Company stock that
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would cause Patriot REIT to own, actually or constructively, 10% or more of
the ownership interests in a Lessee (including Patriot Operating Company and
the Patriot Operating Company Partnership). Thus, Patriot REIT should never
own, actually or constructively, 10% or more of a Lessee. However, because the
relevant constructive ownership rules are broad and it is not possible to
monitor continually direct and indirect transfers of Paired Shares, and
because the charter provisions referred to above may not be effective, no
absolute assurance can be given that such transfers, or other events of which
Patriot REIT has no knowledge, will not cause Patriot REIT to own
constructively 10% or more of one or more Lessees at some future date.
In addition to the considerations discussed above, the REIT requirements
will impose a number of other restrictions on the operations of Patriot REIT.
For example, net income from sales of property sold to customers in the
ordinary course of business (other than inventory acquired by reason of
certain foreclosures) is subject to a 100% tax unless eligible for a certain
safe harbor. Minimum distribution requirements also generally require Patriot
REIT to distribute each year at least 95% of its taxable income for the year
(excluding any net capital gain). In addition, certain asset tests limit
Patriot REIT's ability to acquire non-real estate assets.
NON-DEDUCTIBILITY OF PARACHUTE PAYMENT
In connection with the Merger, each Existing Wyndham Option becomes 100%
vested and exercisable in full. See "The Merger and Subscription--Interests of
Certain Officers, Directors and Stockholders of Wyndham." Under the Code, the
accelerated vesting of the Existing Wyndham Options is treated as a "parachute
payment." To the extent that a member of Wyndham Senior Management receives
parachute payments that exceed the limits determined by Section 280G of the
Code, the "excess" parachute payments are not deductible by Wyndham (or its
successor employer). It is estimated that the acceleration of Existing Wyndham
Options held by one member of Wyndham Senior Management will create an excess
parachute payment in an amount of approximately $1 million.
TAXATION OF WYNDHAM INTERNATIONAL; NON-CONTROLLED SUBSIDIARIES
As "C" corporations under the Code, both Wyndham International and WMC will
be subject to United States federal income tax on their taxable income at
corporate rates. Certain other corporate subsidiaries of the Patriot REIT
Partnership also will be subject to federal income tax.
FEDERAL INCOME TAXATION OF HOLDERS OF PAIRED SHARES
Separate Taxation
Notwithstanding that Paired Shares may only be transferred as a unit,
holders of Paired Shares will be treated for U.S. federal income tax purposes
as holding equal numbers of shares of Patriot REIT Common Stock and of Wyndham
International Common Stock. The tax treatment of distributions to stockholders
and of any gain or loss upon sale or other disposition of the Paired Shares
(as well as the amount of gain or loss) must therefore be determined
separately with respect to each share of Patriot REIT Common Stock and each
share of Wyndham International Common Stock contained within each Paired
Share. The tax basis and holding period for each share of Patriot REIT Common
Stock and each share of Wyndham International Common Stock also must be
determined separately. See "--Tax Consequences of the Merger." Upon a taxable
sale of a Paired Share, the amount realized should be allocated between
Patriot REIT Common Stock and the Wyndham International Common Stock based on
their then-relative values.
Taxation of Taxable U.S. Stockholders
As used herein, the term "U.S. Stockholder" means a holder of Paired Shares
that for United States federal income tax purposes (A) is (i) a citizen or
resident of the United States, (ii) a corporation, partnership, or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate, the income of which is subject
to United States federal income taxation regardless of its source or (iv) a
trust, if a court within the United States is able to exercise primary
supervision over the administration of the trust and
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one or more United States persons have the authority to control all
substantial decisions of the trust and (B) is not an entity that has a special
status under the Code (such as a tax-exempt organization or a dealer in
securities).
As long as Patriot REIT qualifies as a REIT, distributions made to Patriot
REIT's taxable U.S. Stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such U.S. Stockholders as ordinary income and will not be eligible
for the dividends received deduction generally available to corporations. For
purposes of determining whether distributions on the Patriot REIT Common Stock
are out of current or accumulated earnings and profits, the earnings and
profits of Patriot REIT will be allocated first to Patriot REIT's outstanding
preferred stock (if any), and then allocated to the Patriot REIT common stock.
Subject to the discussion below regarding changes to the capital gains tax
rates, distributions that are designated as capital gain dividends will be
taxed as capital gains (to the extent they do not exceed Patriot REIT's actual
net capital gain for the taxable year) without regard to the period for which
the stockholder has held his Patriot REIT Common Stock. However, corporate
stockholders may be required to treat up to 20% of certain capital gain
dividends as ordinary income. Distributions in excess of current and
accumulated earnings and profits will not be taxable to a stockholder to the
extent that they do not exceed the adjusted basis of the stockholder's Patriot
REIT Common Stock, but rather will reduce the adjusted basis of such stock. To
the extent that such distributions in excess of current and accumulated
earnings and profits exceed the adjusted basis of a stockholder's Patriot REIT
Common Stock, such distributions will be included in income as long-term
capital gain (or, in the case of individuals, trusts and estates, mid-term
capital gain if the Patriot REIT Common Stock has been held for more than one
year but not more than 18 months, and in the case of all taxpayers short-term
capital gain if the Patriot REIT Common Stock has been held for one year or
less), assuming the shares are a capital asset in the hands of the
stockholder. In addition, any distribution declared by Patriot REIT in
October, November or December of any year and payable to a stockholder of
record on a specified date in any such month shall be treated as both paid by
Patriot REIT and received by the stockholder on December 31 of such year,
provided that the distribution is actually paid by Patriot REIT during January
of the following calendar year.
Distributions from Wyndham International up to the amount of Wyndham
International's current or accumulated earnings and profits (less any earnings
and profits allocable to distributions on any preferred stock of Wyndham
International) will be taken into account by U.S. Stockholders as ordinary
income and generally will be eligible for the dividends-received deduction for
corporations (subject to certain limitations). Distributions in excess of
Wyndham International's current and accumulated earnings and profits will not
be taxable to a holder to the extent that they do not exceed the adjusted
basis of the holder's Wyndham International Common Stock, but rather will
reduce the adjusted basis of such Wyndham International Common Stock. To the
extent that such distributions exceed the adjusted basis of a holder's Wyndham
International Common Stock, they will be included in income as long-term
capital gain (or, in the case of individuals, trusts and estates, mid-term
capital gain if the Wyndham Common Stock has been held for more than one year
but not more than 18 months, and in the case of all taxpayers short-term
capital gain if the Wyndham Common Stock has been held for one year or less),
assuming the shares are a capital asset in the hands of the stockholder.
Patriot REIT may elect to retain and pay income tax on its net long-term
capital gains recognized during the taxable year. For taxable years beginning
after December 31, 1997, if Patriot REIT so elects for a taxable year, its
stockholders would include in income as capital gain their proportionate share
of such portion of Patriot REIT's long-term capital gains as Patriot REIT may
designate. A stockholder would be deemed to have paid its share of the tax
paid by Patriot REIT, which would be credited or refunded to the stockholder.
The stockholder's basis in its shares of Patriot REIT Common Stock would be
increased by the amount of undistributed capital gains (less the capital gains
tax paid by Patriot REIT) included in the stockholder's capital gains.
Taxable distributions from Patriot REIT or Wyndham International and gain or
loss from the disposition of shares of Patriot REIT Common Stock and Wyndham
International Common Stock will not be treated as passive activity income and,
therefore, stockholders generally will not be able to apply any passive
activity losses (such as losses from certain types of limited partnerships in
which the stockholder is a limited partner) against such income. In addition,
taxable distributions from Patriot REIT or Wyndham International generally
will be treated
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as investment income for purposes of the investment interest deduction
limitations. Capital gain dividends from Patriot REIT, capital gains (other
than short-term capital gains) from the disposition of Paired Shares and
actual or deemed distributions from either company treated as such, including
capital gains (other than short-term capital gains) recognized on account of
nontaxable distributions in excess of a stockholder's basis and any deemed
capital gain dividends to a Patriot REIT stockholder on account of
undistributed capital gains of Patriot REIT, will be treated as investment
income for purposes of the investment interest deduction limitation only if
and to the extent the stockholder so elects, in which case such capital gain
dividends and gains will be taxed at ordinary income rates to the extent of
such election. Patriot REIT and Wyndham International will notify stockholders
after the close of their taxable years as to the portions of the distributions
attributable to that year that constitute ordinary income, return of capital,
and (in the case of Patriot REIT) capital gain. Stockholders may not include
in their individual income tax returns any net operating losses or capital
losses of Patriot REIT or of Wyndham International.
The Relief Act alters the taxation of capital gain income. Under the Relief
Act, individuals, trusts and estates that hold certain investments for more
than 18 months may be taxed at a maximum long-term capital gain rate of 20% on
the sale or exchange of those investments. Individuals, trusts and estates
that hold certain assets for more than one year but not more than 18 months
may be taxed at a maximum mid-term capital gain rate of 28% on the sale or
exchange of those investments. The Relief Act also provides a maximum rate of
25% for "unrecaptured section 1250 gain" for individuals, trusts and estates,
special rules for "qualified 5-year gain," as well as other changes to prior
law. The Relief Act allows the IRS to prescribe regulations on how the Relief
Act's new capital gain rates will apply to sales of assets by, and sales of
interests in, "pass-through entities," which include REITs such as Patriot
REIT. To date regulations have not yet been prescribed, and it remains unclear
how the Relief Act's new rates will apply to capital gain dividends or
undistributed capital gains, including, for example the extent, if any, to
which capital gain dividends or undistributed capital gains from Patriot REIT
following the Merger will be taxed to individuals, trusts and estates at the
new rates for mid-term capital gains and unrecaptured section 1250 gain,
rather than the long-term capital gain rates. Investors are urged to consult
their own tax advisors with respect to the new rules contained in the Relief
Act.
Taxation of Stockholders on the Disposition of Paired Shares
In general, and assuming the taxpayer has the same holding period for the
Patriot REIT Common Stock and Wyndham International Common Stock that comprise
his or her Paired Shares, any gain or loss realized upon a taxable disposition
of Paired Shares by a stockholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Paired Shares have been held
for more than one year, (or, in the case of individuals, trusts and estates,
mid-term capital gain or loss if the Paired Shares have been held for more
than one year but not more than 18 months, and long-term capital gain or loss
if the Paired Shares have been held for more than 18 months), and otherwise as
short-term capital gain or loss. As discussed above, however, existing Wyndham
stockholders who receive Paired Shares in the Merger will have different
holding periods with respect to their shares of Patriot REIT Common Stock and
their Wyndham International Common Stock that comprise their Paired Shares.
Accordingly, the portions of the gain or loss recognized on the disposition of
Paired Shares attributable to Patriot REIT Common Stock or Wyndham
International Common Stock may not have the same character for federal income
tax purposes. In addition, any loss upon a sale or exchange of Patriot REIT
Common Stock by a stockholder who has held such stock for six months or less
(after applying certain holding period rules) will be treated as a long-term
capital loss to the extent of distributions from Patriot REIT or undistributed
capital gains required to be treated by such stockholder as long-term capital
gain. All or a portion of any loss realized upon a taxable disposition of
Paired Shares may be disallowed if other Paired Shares are purchased within 30
days before or after the disposition.
Information Reporting Requirements and Backup Withholding
Patriot REIT and Wyndham International will each report to their U.S.
Stockholders and the IRS the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any. Under the backup withholding
rules, a stockholder may be subject to backup withholding at the rate of 31%
with respect to
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distributions paid unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. A stockholder who does not
provide Patriot REIT and Wyndham International with his, her or its correct
taxpayer identification number also may be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, Patriot REIT may be required
to withhold a portion of capital gain distributions to any stockholders who
fail to certify their nonforeign status to Patriot REIT.
Taxation of Tax-Exempt Stockholders
Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. They are, however, subject to
taxation on their UBTI. While many investments in real estate generate UBTI,
amounts distributed by Patriot REIT to Exempt Organizations generally should
not constitute UBTI, nor should dividends paid by Wyndham International
generally constitute UBTI. However, if an Exempt Organization finances its
acquisition of Paired Shares with debt, a portion of its income from Patriot
REIT and Wyndham International will constitute UBTI pursuant to the "debt-
financed property" rules. Furthermore, social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts, and qualified
group legal services plans that are exempt from taxation under paragraphs (7),
(9), (17), and (20), respectively, of Code section 501(c) are subject to
different UBTI rules, which generally will require them to characterize
distributions from Patriot REIT and Wyndham International as UBTI.
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PATRIOT AMERICAN HOSPITALITY, INC., PATRIOT AMERICAN HOSPITALITY OPERATING
COMPANY AND WYNDHAM HOTEL CORPORATION
INDEX TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
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PRO FORMA FINANCIAL INFORMATION
<S> <C>
PATRIOT REIT AND PATRIOT OPERATING COMPANY:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited). ........................................ 184
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1997 (unaudited). ...................................... 186
Pro Forma Condensed Combined Balance Sheet as of
June 30, 1997 (unaudited). ............................................ 189
PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended December 31, 1996 (unaudited).................................... 193
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 (unaudited). ............................... 196
PATRIOT OPERATING COMPANY:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 199
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 (unaudited). ............................... 202
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the six months ended June
30, 1997 (unaudited) .................................................. 206
PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED
FOR THE WYNDHAM TRANSACTIONS
PATRIOT REIT AND WYNDHAM INTERNATIONAL:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 211
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1997 (unaudited). ...................................... 213
Pro Forma Condensed Combined Balance Sheet as of
June 30, 1997 (unaudited).............................................. 216
PATRIOT REIT:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 219
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 (unaudited). ............................... 221
WYNDHAM INTERNATIONAL:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 223
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 (unaudited). ............................... 225
COMBINED LESSEES:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited) and the six months ended June
30, 1997 (unaudited)................................................... 228
</TABLE>
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PRO FORMA FINANCIAL INFORMATION--AS ADJUSTED FOR THE WHG MERGER
<TABLE>
<CAPTION>
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<S> <C>
PATRIOT REIT AND WYNDHAM INTERNATIONAL:
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1996 (unaudited).......................................... 231
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1997 (unaudited). ...................................... 232
Pro Forma Condensed Combined Balance Sheet as of
June 30, 1997 (unaudited).............................................. 234
WYNDHAM INTERNATIONAL:
Pro Forma Condensed Consolidated Statement of Operations for the year
ended
December 31, 1996 (unaudited).......................................... 236
Pro Forma Condensed Consolidated Statement of Operations for the six
months ended June 30, 1997 (unaudited). ............................... 237
</TABLE>
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PATRIOT REIT AND PATRIOT OPERATING COMPANY
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
BACKGROUND
On July 1, 1997, pursuant to the Cal Jockey Merger, Old Patriot REIT merged
with and into Cal Jockey, with Cal Jockey being the surviving legal entity. In
connection with the Cal Jockey Merger, Cal Jockey changed its name to Patriot
American Hospitality, Inc. and Bay Meadows changed its name to Patriot
American Hospitality Operating Company. Patriot REIT's shares of common stock
are paired and trade together with the shares of common stock of Patriot
Operating Company as a single unit pursuant to a stock pairing arrangement.
By operation of the Cal Jockey Merger, each issued and outstanding share of
Old Patriot REIT Common Stock was converted into 0.51895 shares of Patriot
REIT Common Stock and 0.51895 shares of Patriot Operating Company Common Stock
(prior to giving effect to the 1.927-for-1 stock split discussed below), which
shares are paired and transferable only as a single unit. Each paired share of
Cal Jockey and Bay Meadows common stock remained outstanding and represented
the same number of paired shares of Patriot REIT Common Stock and Patriot
Operating Company Common Stock.
In connection with the Cal Jockey Merger, Bay Meadows formed the Patriot
Operating Company Partnership into which Bay Meadows contributed its assets in
exchange for OP Units of the Patriot Operating Company Partnership, and Cal
Jockey contributed certain of its assets to the Patriot REIT Partnership in
exchange for OP Units of the Patriot REIT Partnership. Subsequent to
completion of the Cal Jockey Merger and the related transactions contemplated
by the Cal Jockey Merger Agreement, substantially all of the operations of
Patriot REIT and Patriot Operating Company have been conducted through the
Patriot Partnerships and their subsidiaries.
The unaudited Pro Forma Financial Statements have been adjusted for the
purchase method of accounting whereby the Racecourse facilities and related
leasehold improvements owned by Cal Jockey and Bay Meadows are adjusted to
estimated fair market value. The Cal Jockey Merger has been accounted for as a
reverse acquisition whereby Cal Jockey is considered to be the acquired
company for accounting purposes.
On July 10, 1997, the respective Boards of Directors of Patriot REIT and
Patriot Operating Company declared a 1.927-for-1 stock split on its shares of
common stock effected in the form of a stock dividend distributed on July 25,
1997 to shareholders of record on July 15, 1997.
Unless otherwise indicated, all references in the pro forma financial
statements to the number of shares, per share amounts, and market prices of
the common stock and options to purchase common stock have been restated to
reflect the impact of the conversion of each share of Old Patriot REIT Common
Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger and the
1.927-for-1 stock split. In addition, all references in the pro forma
financial statements to the number of shares, per share amounts, and market
prices of the common stock and options to purchase common stock related to
periods prior to the 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend distributed on March 18, 1997 to
shareholders of record on March 7, 1997 have been restated to reflect the
impact of such stock split.
Patriot REIT leases each of its hotels, except the Crowne Plaza Ravinia
Hotel and the Wyndham WindWatch Hotel, which are separately owned through Non-
Controlled Subsidiaries, to either Patriot Operating Company or the Lessee
that is responsible for operating such hotel. The hotels are leased for
periods ranging from one to 12-years pursuant to separate Participating Leases
providing for the payment of the greater of base or participating rent, plus
certain additional charges, as applicable. The Lessees, in turn, have entered
into separate agreements with the Operators to manage the hotels. The Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel were structured without
lessees and are managed directly by an Operator.
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As of October 15, 1997, 35 of Patriot REIT's hotels are leased to separate
Lessees (excluding the Park Shore Hotel), and 42 hotels are leased to Patriot
Operating Company.
BUSINESSES ACQUIRED
Since June 30, 1997, Patriot REIT, through the Patriot REIT Partnership and
its subsidiaries, has invested approximately $319,019 to acquire 14 hotels
with a total of 3,658 rooms (the "Recent Acquisitions"), which are described
below. In addition, in connection with certain other transactions described
below (see "Acquisition of Gencom American Hospitality and Merger with CHC
International, Inc."), Patriot REIT, through the Patriot REIT Partnership and
its subsidiaries, has invested approximately $236,984 in the acquisition of
ten additional hotels with a total of 3,119 rooms (the "CHC Hotels").
In July 1997, Patriot REIT acquired 90% of the equity interests in four
separate limited liability companies which own the 266-room Holiday Inn
Westlake, the 196-room Radisson Beachwood, and the 113-room Courtyard by
Marriot Beachwood, all in Cleveland, Ohio and the 130-room Radisson Hotel in
Akron, Ohio (the "Snavely Portfolio"). The Radisson Beachwood hotel is subject
to a mortgage loan with a financial institution with a principal balance of
approximately $5,774. In addition, Patriot REIT, through the Patriot REIT
Partnership and its subsidiaries, acquired the 224-room Holiday Inn at the San
Francisco International Airport; the 323-room Ramada Inn at the San Francisco
International Airport; the 219-room Ambassador West, a Grand Heritage Hotel in
Chicago, Illinois; and the 124-room Union Station Hotel, a Grand Heritage
Hotel in Nashville, Tennessee. These acquisitions were financed primarily with
the proceeds from the sale of certain land described below and with funds
drawn on the Patriot Companies' Revolving Credit Facility as described below.
In August 1997, Patriot REIT, through the Patriot REIT Partnership and its
subsidiaries, acquired the 227-room Park Shore Hotel in Honolulu, Hawaii. The
acquisition was financed primarily with funds drawn on the Patriot Companies'
Revolving Credit Facility. The following unaudited Pro Forma Condensed
Combined Statements of Operations do not include the results of operations of
the Park Shore Hotel.
On September 4, 1997, Patriot REIT, through a consolidated partnership in
which the Patriot REIT Partnership owns an 85% general partnership interest
and an affiliate of Doubletree Hotels Corporation owns a 15% limited
partnership interest, acquired four Doubletree Hotels in Houston, Texas,
Anaheim, California, St. Louis, Missouri and Overland Park, Kansas, with an
aggregate of 1,482 rooms (the "Met-Doubletree Hotels"). The Met-Doubletree
Hotels were financed with a combination of mortgage debt and cash
contributions to the partnership by the Patriot REIT Partnership and by the
affiliate of Doubletree Hotels Corporation and the issuance of 614,046 paired
OP Units in the Patriot REIT Partnership and the Patriot Operating Company
Partnership. Patriot REIT Partnership's contribution was financed primarily
with funds drawn on the Patriot Companies' Revolving Credit Facility.
In August 1997, the Patriot Companies acquired Grand Heritage Hotels, Inc.,
a hotel management and marketing company, and other Grand Heritage
subsidiaries including Grand Heritage Leasing, L.L.C., which leased three
hotels from Patriot REIT (the "Grand Heritage Acquisition"). The acquisition
was financed primarily through the issuance of 931,972 Class A preferred OP
Units of the Patriot Operating Company Partnership.
Effective October 1, 1997, Patriot Operating Company, through certain of its
subsidiaries, acquired the members' interest of PAH RSI, L.L.C., a limited
liability company owned and controlled by certain executive officers of the
Patriot Companies ("PAH RSI Lessee") for approximately $143. PAH RSI Lessee
leased eight of Patriot REIT's hotels. As a result of the acquisition, Patriot
Operating Company holds these leasehold interests.
On October 15, 1997, Patriot REIT, through certain of its subsidiaries,
acquired The Buttes, a 353-room resort hotel in Tempe, Arizona. The purchase
was financed primarily with funds drawn on Patriot REIT's revolving credit
facility. Patriot REIT has leased the hotel to Patriot Operating Company and a
Patriot Operating Company subsidiary will manage the hotel.
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On July 14, 1997, Patriot REIT sold approximately 174 acres of land in San
Mateo, California, representing substantially all of the land which was owned
by Cal Jockey prior to the Cal Jockey Merger, to an affiliate of PaineWebber
for a purchase price of approximately $80,864. These funds were placed in a
restricted trust account in order to facilitate a tax-deferred, like-kind
exchange through the acquisition of suitable hotel properties. During July
1997, three suitable hotels (the Holiday Inn at the San Francisco
International Airport, the Ambassador West Hotel and the Union Station Hotel)
were acquired using a portion of the proceeds from this restricted account.
Patriot REIT retained ownership of the improvements located on the land,
including the Racecourse and its related facilities. Simultaneously with the
consummation of the PaineWebber Land Sale, the PaineWebber affiliate and
Patriot REIT entered into a ground lease covering a portion of the land on
which the Racecourse is situated for a term of seven years. The lease provides
for quarterly rental payments of $750 through March 1998, $813 through March
1999, $875 through March 2000, $1,000 through March 2002 and $1,250 through
July 2004. Additionally, Patriot REIT subleased the Racecourse land and leased
the related improvements to Patriot Operating Company in order to permit
Patriot Operating Company to continue horseracing operations at the Racecourse
through the term of Patriot REIT's lease. The sublease is for a term of seven
years with annual payments based on percentages of revenue generated. In
addition, Patriot REIT has leased certain land adjacent to the Racecourse to
Borders, Inc. (the "Borders Lease") for an initial term of 20 years with a
fixed net annual rent of $279 for years 1 through 10, $362 for years 11
through 15 and $416 for years 16 through 20. In connection with the sale,
Patriot REIT assigned all of its rights and benefits under existing leases,
contracts, permits and entitlements relating to the land sold (excluding the
Borders Lease) to the PaineWebber affiliate, and the PaineWebber affiliate
assumed all of Patriot REIT's development obligations including, but not
limited to, all obligations for on and off-site improvements and all
obligations under existing leases and contracts. The parties have the option
to renew such leases upon their expiration under certain circumstances.
FINANCING TRANSACTIONS
On July 21, 1997, the Patriot Companies entered into the Revolving Credit
Facility with Paine Webber Real Estate, Chase and certain other lenders for a
three-year $700,000 unsecured revolving line of credit. Borrowings have been
made under the Revolving Credit Facility to repay all outstanding amounts
under Old Patriot REIT's secured line of credit with Paine Webber Real Estate
(the "Old Line of Credit"). The Revolving Credit Facility generally is used
for the acquisition of additional properties, businesses and other assets, for
capital expenditures and for general working capital purposes. In addition, it
is expected that the Revolving Credit Facility will be used to refinance that
portion of existing Wyndham indebtedness that is not refinanced through the
Term Loan (see below). The interest rate for the Revolving Credit Facility
ranges from LIBOR plus 1.0% to 2.0% (depending on the Patriot Companies'
leverage ratio or the investment grade rating received from the rating
agencies) or the customary alternate base rate announced from time to time
plus 0.0% to 0.5% (depending on the Patriot Companies' leverage ratio). The
interest rate currently in effect for the Revolving Credit Facility is 7.656%
per annum.
Additionally, Patriot REIT has entered into a commitment letter with Paine
Webber Real Estate and Chase for the $500,000 Term Loan. It is anticipated
that the Term Loan will be secured by specific assets and properties of the
Patriot Companies that will be transferred to a special purpose "bankruptcy
remote" entity. The Term Loan will be used primarily to refinance
substantially all of the existing indebtedness of Wyndham and to finance
payments to be made in connection with the Merger and the Related Transactions
and the Crow Assets Acquisition. The Term Loan is expected to have an interest
rate per annum equal to LIBOR plus 1.75%.
The Patriot Companies have entered into three interest rate swap
arrangements to swap floating rate LIBOR-based interest rates for fixed rate
interest amounts as a hedge against $375,000 of the $700,000 Revolving Credit
Facility. Each of the interest rate swaps covers $125,000 of borrowings under
the Revolving Credit Facility and fixes the LIBOR portion of the interest rate
at 6.09%, 6.255% and 6.044%, respectively. The interest rate swap arrangements
expire November 2002. The following unaudited Pro Forma Condensed Combined
Statements of Operations do not include adjustments to pro forma interest
expense to reflect these interest rate swap arrangements.
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In June 1997, Patriot REIT loaned approximately $20,500 to a partnership
affiliated with members of CHC Lease Partners relating to the Doubletree Hotel
in Glenview, Illinois. In July 1997, Patriot REIT loaned approximately $25,600
to another partnership affiliated with members of CHC Lease Partners, relating
to the Sheraton Gateway Hotel in Miami (also known as the Sheraton River House
Hotel). Both loans mature in two years, bear interest at a rate per annum
equal to 30-day LIBOR plus 2.75%, and are secured by first priority liens on
the respective hotels. Additionally, Patriot REIT has purchased two additional
loans on which partnerships affiliated with the members of CHC Lease Partners
are borrowers for an aggregate purchase price of $57,000. One of the purchased
loans, in the principal amount of approximately $30,700, matures in December
2000 and bears interest at a rate per annum equal to 8.0% until November 30,
1997, 8.5% from December 1, 1997 until November 30, 1999, and 9.0% from
December 1, 1999 until December 1, 2000. The second purchased loan, in the
principal amount of approximately $24,400, matures on December 31, 1999 and
bears interest at a rate per annum equal to 8.0% until December 31, 1997 and
9.5% from January 1, 1998 until December 31, 1999. Each of the purchased loans
is secured by first priority liens on the respective hotels. The notes contain
certain penalties for early repayment. In connection with such loans, Patriot
REIT has entered into a short-term financing arrangement with an affiliate of
Paine Webber Real Estate (the "Paine Webber Mortgage Financing"), whereby such
affiliate loaned Patriot REIT $103,000 through April 15, 1998 at a rate equal
to the greater of 30-day LIBOR plus 1.75% or the borrowing rate on the
Revolving Credit Facility. This financing is secured by a collateral
assignment of the mortgage loans encumbering the four hotels. In October 1997,
Patriot REIT, through certain of its subsidiaries, acquired 100% of the
ownership interests in the four partnerships that own these hotels (see
"Acquisition of Gencom American Hospitality and Merger with CHC International,
Inc." below). As a result, the note balances and the related interest income
and expense are eliminated in Patriot REIT's consolidated financial
statements.
On August 1, 1997, Patriot Operating Company purchased a participating loan
from National Resort Ventures, L.P., a Delaware limited partnership, related
to the 1,013-room Buena Vista Palace Hotel in Orlando, Florida for $23,750 in
cash (the "Participating Note"). The Participating Note acquisition closed
simultaneously with the closing of the public offering of common stock
discussed below. The Buena Vista Palace Hotel is owned by a joint venture
between Equitable Life Insurance Company, which owns a 55% interest, and Hotel
Venture Partners, Ltd., a Florida limited partnership, which owns a 45%
interest. The Participating Note is subordinated to a ground lease, a $51,000
first leasehold mortgage loan and a separate $8,500 participating loan.
In August 1997, the Patriot Companies completed a public offering (the
"Offering") of 10,580,000 Paired Shares (including 1,380,000 Paired Shares
issued upon exercise of the underwriters' over-allotment option), with net
proceeds (less underwriter discount and expenses) of approximately $240,795.
The net proceeds were primarily used to reduce the outstanding debt under the
Revolving Credit Facility.
ACQUISITION OF GENCOM AMERICAN HOSPITALITY AND MERGER WITH CHC INTERNATIONAL,
INC.
In September 1997, Patriot REIT, through certain of its subsidiaries,
acquired six hotels (including an approximate 50% controlling ownership
interest in the Omni Inner Harbor Hotel) and in October 1997, Patriot REIT,
through certain of its subsidiaries, acquired four additional hotels. These
ten hotels were acquired from entities affiliated with the Gencom and CHCI for
an aggregate purchase price of approximately $236,984. In addition, Patriot
REIT has entered into an agreement whereby Patriot REIT may indirectly acquire
the remaining ownership interest in the Omni Inner Harbor Hotel through a
merger of the parent company of the Gencom-related entity that owns such
interest with Patriot REIT or by other means for approximately $19,314. The
ten hotels will be leased to and managed by Patriot Operating Company and its
subsidiaries. The purchase of the ten hotels was financed with approximately
$45,000 of cash drawn on the Revolving Credit Facility and by issuing
1,703,943 Paired Shares and 2,174,773 paired OP Units in the Patriot
Partnerships in a private placement. Four of the hotels are encumbered by the
mortgage loans, in the aggregate amount of approximately $103,443 including
accrued interest, that Patriot REIT made in connection with the Paine Webber
Mortgage Financing discussed above.
In addition, Patriot REIT acquired the leasehold interests related to eight
hotels which were previously leased by CHC Lease Partners and re-leased such
hotels to Patriot Operating Company. Prior to such acquisition,
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the management contracts with GAH, an affiliate of CHCI and Gencom, related to
the eight hotels were terminated. The aggregate purchase price of the
leasehold interests was approximately $52,766. Concurrently, Patriot Operating
Company purchased an approximate 50% managing, controlling ownership interest
in GAH from affiliates of Gencom for a purchase price of approximately
$13,860. These transactions were financed with approximately $644 of cash, and
by issuing 2,388,932 paired OP Units of the Patriot REIT Partnership and the
Patriot Operating Company Partnership and 476,682 Class C preferred OP Units
of Patriot Operating Company Partnership. In connection with Patriot REIT's
acquisition of the eight leasehold interests from CHC Lease Partners, CHC
Lease Partners was liquidated and its remaining 17 leasehold interests became
leasehold interests of CHCI, the ultimate remaining owner of CHC Lease
Partners at the time of its liquidation. These 17 leasehold interests will be
acquired by Patriot Operating Company if the CHCI Merger is consummated, as
described below.
GAH, directly and through certain of its subsidiaries, owns nine management
contracts related to hotels leased by Patriot Operating Company, 15 third-
party management contracts, and certain other hospitality management assets.
Concurrently with Patriot Operating Company's purchase of its controlling
interest in GAH, Patriot Operating Company also entered into a Hospitality
Advisory, Asset Management and Support Services Agreement with CHCI and GAH
whereby Patriot Operating Company will provide certain hospitality advisory,
asset management and support services to certain CHCI and GAH subsidiaries for
base fees aggregating $750 per month plus a percentage of excess cash flows of
the hotels.
Patriot REIT, Patriot Operating Company and CHCI have also entered into an
Agreement and Plan of Merger dated as of September 30, 1997 for the merger of
the hospitality-related businesses of CHCI with and into Patriot Operating
Company with Patriot Operating Company being the surviving company. Subject to
regulatory approvals, CHCI's gaming operations will be transferred to a new
legal entity prior to the CHCI Merger and such operations will not be a part
of the transaction. It is anticipated that the CHCI Merger will be consummated
in the first or second quarter of 1998, although the precise timing is subject
to certain conditions, including receipt of all necessary regulatory
approvals. As a result of the CHCI Merger, Patriot Operating Company, through
its subsidiaries, will acquire the remaining 50% investment interest in GAH,
the remaining 17 leases and 16 of the associated management contracts related
to the Patriot REIT hotels leased by CHC Lease Partners, 3 management
contracts related to Patriot REIT hotels leased by Patriot Operating Company,
12 third-party management contracts, 2 third-party lease contracts, the Grand
Bay and Registry Hotels & Resorts proprietary brand names and certain other
hospitality management assets. Patriot Operating Company has also agreed to
provide CHCI with a $7,000 line of credit until such time as the CHCI Merger
is completed.
By operation of the CHCI Merger and the transactions related thereto, each
issued and outstanding CHCI Share and certain stock option rights will be
converted into the right to receive shares of Operating Company Series A
Preferred Stock and shares of Operating Company Series B Preferred Stock. The
formula for determining the exchange ratio of CHCI Shares for Operating
Company Series A Preferred Stock and Operating Company Series B Preferred
Stock is based on issuing an aggregate of approximately 4,396,000 shares of
Operating Company Preferred Stock (based on an aggregate purchase value of
approximately $102,200 and a market price per Paired Share of $23.25), subject
to reduction if certain specified events occur and subject to increase
representing adjustments for dividends paid on Paired Shares after September
30, 1997. Generally, the aggregate number of shares of Operating Company
Preferred Stock that each shareholder shall have the right to receive pursuant
to the CHCI Merger shall consist of, to the extent possible, an equal number
of Operating Company Series A Preferred Stock and Operating Company Series B
Preferred Stock.
Generally, each share of Operating Company Series A Preferred Stock may be
redeemed for one Paired Share at any time following the one-year anniversary
of the closing of the CHCI Merger. Each share of Operating Company Series B
Preferred Stock may be redeemed for one Paired Share, however, such redemption
is generally restricted until the fifth-year anniversary of the closing of the
CHCI Merger. The value of a Paired Share at the time of redemption (the
"Redemption Value") may, at Patriot Operating Company's option, be paid in
cash. Further, if Patriot Operating Company fails to comply with certain
restrictions, the preferred shares
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may be redeemed for cash or, at Patriot Operating Company's option, Paired
Shares at the Redemption Value plus a premium. The dividend rate on the shares
of Operating Company Preferred Stock is equivalent to the dividend rate on the
Paired Shares. Dividends on Operating Company Series B Preferred Stock are
subject to increase during the five years subsequent to the closing of the
CHCI Merger if the shares are transferred by the original holder. If the
dividends on the shares of Operating Company Preferred Stock are not paid when
due, dividends will instead accrue at the rate of 115% per annum on a
compounded basis. The shares of Operating Company Preferred Stock are
redeemable at Patriot Operating Company's option at the Redemption Value, plus
a premium in the case of the original holders thereof and certain permitted
transferees.
In connection with the Acquisition of GAH, preferred OP Units of the Patriot
Operating Company Partnership with a value of approximately $5,000 have been
held back, and the CHCI Merger equity consideration is subject to reduction in
the amount of approximately $5,000 if the hotels and leaseholds acquired fail
to achieve certain operating targets over the period prior to the closing of
the CHCI Merger.
In addition, on September 30, 2000 and September 30, 2002, Patriot Operating
Company may be obligated to pay the CHCI stockholders, and a subsidiary of
Patriot Operating Company may be obligated to pay a Gencom-related entity,
additional consideration, in each case based upon the delivery and performance
of certain specified assets.
As part of the above-described acquisitions, Karim Alibhai, the chief
executive officer of Gencom, was appointed to the position of president, chief
operating officer and director of Patriot Operating Company. Patriot Operating
Company has entered into an employment agreement with Mr. Alibhai, pursuant to
which Mr. Alibhai serves as president and chief operating officer of Patriot
Operating Company for a term of three years at an initial annual base
compensation of $350, subject to any increases in base compensation approved
by the Compensation Committee of the Patriot Operating Company Board of
Directors. In addition, under the terms of the employment contract, Mr.
Alibhai is eligible to receive cash incentive compensation in an amount to be
determined by the Compensation Committee, but not less than $75 per year, up
to 80% of his annual base compensation, as adjusted. In addition, Mr. Alibhai
was granted nonqualified options to purchase 280,000 Paired Shares at an
exercise price of $32.0625 per Paired Share (the closing market price of a
Paired Share on the date of grant). The options to purchase Paired Shares vest
in equal quarterly installments over a period of three years.
SUMMARY
As of November 3, 1997, Patriot REIT owned interests in 80 hotels and
resorts and held an approximate 83.6% ownership interest in the Patriot REIT
Partnership. Patriot Operating Company held an approximate 82.1% ownership
interest in the Patriot Operating Company Partnership. The unaudited Pro Forma
Financial Statements reflect an approximate 16.3% minority ownership interest
in the Patriot REIT Partnership and a 16.8% minority ownership interest in the
Patriot Operating Company Partnership, which represents the estimated
ownership interest subsequent to consummation of the GAH Acquisition and the
CHCI Merger.
The following unaudited Pro Forma Condensed Combined Statement of Operations
for the year ended December 31, 1996 and the six months ended June 30, 1997 of
Patriot REIT and Patriot Operating Company are derived from the individual
unaudited Pro Forma Condensed Consolidated Statements of Operations of Patriot
REIT and Patriot Operating Company which are located on pages 193 through 204.
Such pro forma information is based in part upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996 and the Joint Quarterly
Report on Form 10-Q for the six months ended June 30, 1997;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996 and the Joint Quarterly Report on Form 10-Q for the six
months ended June 30, 1997;
182
<PAGE>
(iii) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(iv) the historical financial statements of the certain hotels and
businesses acquired by Patriot REIT and Patriot Operating Company filed in
the Patriot Companies' Joint Current Reports on Form 8-K dated September
17, 1997, and September 30, 1997, as amended; and
(v) the Pro Forma Condensed Combined Statements of Operations of the
Lessees which are located on page 206.
The following unaudited Pro Forma Condensed Combined Statements of
Operations assume the following transactions (the "Recent Transactions") have
occurred at the beginning of the periods presented:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased the land and
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) Patriot REIT has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
The pro forma results of operations for the year ended December 31, 1996
assume the 24 hotels acquired during 1996 and the private placement of equity
securities and the public offering of common stock completed by Old Patriot
REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made. The following unaudited Pro
Forma Condensed Combined Statements of Operations are not necessarily
indicative of what the actual results of operations of Patriot REIT and
Patriot Operating Company would have been assuming such transactions had been
completed as of the beginning of the period presented, nor do they purport to
represent the results of operations for future periods. Further the unaudited
Pro Forma Condensed Combined Statement of Operations for the interim period
ended June 30, 1997 is not necessarily indicative of the results of operations
for the full year.
183
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue.................... $213,868 $ -- $(172,119)(A) $ 41,749
Hotel revenue............... -- 572,292 -- 572,292
Racecourse facility and land
lease revenue ............. 5,945 51,946 (5,611)(B) 52,280
Management fee and service
fee income................. -- 13,522 -- 13,522
Interest and other income... 2,297 10,012 (5,916)(C) 6,393
-------- -------- --------- --------
Total revenue............... 222,110 647,772 (183,646) 686,236
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations................. -- 241,792 -- 241,792
Racecourse facility
operations................. -- 46,351 (5,611)(B) 40,740
Direct operating costs of
management company, service
department and development
costs...................... -- 11,143 -- 11,143
Ground lease expense........ 5,693 733 -- 6,426
General and administrative.. 6,797 71,700 (34)(C) 78,463
Repair and maintenance...... -- 29,897 -- 29,897
Utilities................... -- 26,843 -- 26,843
Interest expense............ 64,877 1,393 (5,882)(C) 60,388 (D)
Real estate and personal
property taxes and casualty
insurance.................. 22,488 398 -- 22,886
Marketing................... -- 51,238 -- 51,238
Management fees............. -- 9,469 -- 9,469
Depreciation and
amortization............... 62,723 10,348 -- 73,071
Participating lease
payments................... -- 172,119 (172,119)(A) --
-------- -------- --------- --------
Total expenses.............. 162,578 673,424 (183,646) 652,356
-------- -------- --------- --------
Income (loss) before equity
in earnings of
unconsolidated subsidiaries,
income tax provision and
minority interests.......... 59,532 (25,652) -- 33,880
Equity in earnings of
unconsolidated
subsidiaries............... 7,559 -- -- 7,559
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests................... 67,091 (25,652) -- 41,439
Income tax provision........ (170) (760) -- (930)
-------- -------- --------- --------
Income (loss) before minority
interests................... 66,921 (26,412) -- 40,509
Minority interest in the
Patriot Partnerships....... (10,610) 4,437 -- (6,173)
Minority interest in
consolidated subsidiaries.. (1,832) -- -- (1,832)
-------- -------- --------- --------
Net income (loss) applicable
to common shareholders(F)... $ 54,479 $(21,975) $ -- $ 32,504 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(E)............. $ 0.74 $ (0.30) $ 0.44 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot REIT to Patriot Operating Company.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) In connection with the Cal Jockey Merger, Patriot REIT Partnership
subscribed for shares of Bay Meadows common stock (which became shares of
Patriot Operating Company Common Stock in connection with the Cal Jockey
Merger) in an amount equal to the number of shares of Patriot REIT Common
Stock that were issued to Old Patriot REIT stockholders in the Cal Jockey
Merger. In addition, Patriot REIT Partnership similarly subscribed for OP
Units in the Patriot Operating Partnership in an amount equal to the
number of Patriot REIT Partnership OP Units that were outstanding
subsequent to the Cal Jockey Merger. The subscription for the shares and
OP Units was funded through the issuance of promissory notes in the
aggregate amount of $58,901 (the "Subscription Notes") payable to Patriot
Operating Company. The Subscription Notes accrue interest at a rate of 8%
per annum and mature December 31, 1997. The pro forma adjustments
represent the elimination of $4,712 of interest income and expense related
to the Subscription Notes, the elimination of $1,170 of interest income
and expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
were acquired by Patriot Operating Company, and the elimination of $34 of
other intercompany income and expense items.
184
<PAGE>
(D) The pro forma amounts presented assume an average interest rate of 7.183%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $61,963, decrease net income
applicable to common shareholders to $31,186 and decrease net income per
common share to $0.42
In connection with the closing of the Revolving Credit Facility, deferred
loan costs totaling approximately $13,192, including fees, legal and other
expenses were incurred and amortization expense of approximately $4,397 is
reflected in pro forma interest expense. Amortization of deferred loan costs
is computed using the straight-line method over the 3-year loan term. As a
result of closing the Revolving Credit Facility, deferred loan costs
totaling approximately $2,910 related to the Old Line of Credit are to be
written off. This amount will be reported as an extraordinary item in the
Patriot Companies' results of operations and has been reflected as an
adjustment to retained earnings for pro forma presentation purposes.
(E) Pro forma earnings per share is computed based on 73,516 weighted average
common paired shares and common paired share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares. In addition, the net
income per common paired share and the weighted average number of common
paired shares and common paired share equivalents have been adjusted for
(i) the March 1997 2-for-1 stock split on Old Patriot REIT Common Stock
effected in the form of a stock dividend, (ii) the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and (iii) the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 Earnings Per Share ("Statement
128"). Statement 128 specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.44 per common Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(F) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the year ended December 31, 1996 is to reflect the expected continuing
impact of the above-described transactions on the Patriot Companies, the
one-time adjustment to write off the cost of acquiring these leases has
been excluded. This expense will be recorded as an operating expense on
Patriot REIT's and Patriot Operating Company's respective statements of
operations; however, the Patriot Companies will not deduct this expense
for purposes of calculating funds from operations, due to the non-
recurring nature of the expense.
185
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
--------- ---------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue.................... $117,348 $ -- $ (95,694)(A) $ 21,654
Hotel revenue............... -- 313,694 -- 313,694
Racecourse facility and land
lease revenue.............. 2,802 22,538 (2,635)(B) 22,705
Management fee and service
fee income................. -- 7,866 -- 7,866
Interest and other income... 2,806 5,364 (2,965)(C) 5,205
-------- -------- --------- --------
Total revenue............... 122,956 349,462 (101,294) 371,124
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations................. -- 127,484 -- 127,484
Racecourse facility
operations................. -- 20,282 (2,635)(B) 17,647
Direct operating costs of
management company, service
department and development
costs...................... -- 6,639 -- 6,639
Ground lease expense........ 2,804 446 -- 3,250
General and administrative.. 5,077 36,332 (24)(C) 41,385
Repair and maintenance...... -- 15,882 -- 15,882
Utilities................... -- 12,887 -- 12,887
Interest expense............ 32,694 623 (2,941)(C) 30,376 (D)
Real estate and personal
property taxes and casualty
insurance.................. 12,084 220 -- 12,304
Marketing................... -- 26,629 -- 26,629
Management fees............. -- 6,000 -- 6,000
Depreciation and
amortization............... 32,188 5,113 -- 37,301
Participating lease
payments................... -- 95,694 (95,694)(A) --
-------- -------- --------- --------
Total expenses.............. 84,847 354,231 (101,294) 337,784
-------- -------- --------- --------
Income (loss) before equity
in earnings of
unconsolidated subsidiaries,
income tax provision and
minority interests.......... 38,109 (4,769) -- 33,340
Equity in earnings of
unconsolidated
subsidiaries............... 3,093 -- -- 3,093
-------- -------- --------- --------
Income (loss) before income
tax provision and minority
interests................... 41,202 (4,769) -- 36,433
Income tax (provision)
benefit.................... (85) 222 -- 137
-------- -------- --------- --------
Income (loss) before minority
interests................... 41,117 (4,547) -- 36,570
Minority interest in the
Patriot Partnerships....... (6,541) 764 -- (5,777)
Minority interest in
consolidated subsidiaries.. (987) -- -- (987)
-------- -------- --------- --------
Net income (loss) applicable
to common shareholders(F)... $ 33,589 $ (3,783) $ -- $ 29,806 (D)
======== ======== ========= ========
Net income (loss) per common
Paired Share(E)............. $ 0.45 $ (0.05) $ 0.40 (D)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 59 hotels (including the 17 leases to be acquired in connection
with the CHCI Merger) leased by Patriot REIT to Patriot Operating Company.
(B) Represents elimination of rental income and expense related to the
Racecourse facility and land leased by Patriot REIT to Patriot Operating
Company.
(C) The pro forma adjustments represent the elimination of $2,356 of interest
income and expense related to the Subscription Notes issued to Patriot
Operating Company in connection with the subscription for shares of
Patriot Operating Company Common Stock and Patriot Operating Partnership
OP Units issued in connection with the Cal Jockey Merger, the elimination
of $585 of interest income and expense related to a note receivable issued
to Old Patriot REIT in connection with the sale of certain assets to PAH
RSI Lessee, which assets were acquired by Patriot Operating Company, and
the elimination of $24 of other intercompany income and expense items.
(D) The pro forma amounts presented assume an average interest rate of 7.264%
per annum (representing LIBOR plus 1.7%) on the amounts outstanding under
the Revolving Credit Facility. An increase of 0.25% in the interest rate
would increase pro forma interest expense to $31,165 and decrease net
income applicable to common shareholders to $29,145. Net income per common
share would be $0.39. In connection with the closing of the Revolving
Credit Facility, deferred loan costs totaling approximately $13,192,
including fees, legal
186
<PAGE>
and other expenses were incurred and amortization expense of approximately
$2,199 is reflected in pro forma interest expense. Amortization of deferred
loan costs is computed using the straight-line method over the 3-year loan
term. As a result of closing the Revolving Credit Facility, deferred loan
costs totaling approximately $2,910 related to the Old Line of Credit are to
be written off. This amount will be reported as an extraordinary item in the
Patriot Companies' results of operations and has been reflected as an
adjustment to retained earnings for pro forma presentation purposes.
(E) Pro forma earnings per share is computed based on 74,045 weighted average
common paired shares and common paired share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares. In addition, the net
income per common paired share and the weighted average number of common
paired shares and common paired share equivalents have been adjusted to
reflect the impact of the 1.927-for-1 stock split effected in the form of
a stock dividend.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be $0.44 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
(F) In connection with the GAH Acquisition and the CHCI Merger, Patriot REIT
acquired eight Participating Leases held by CHC Lease Partners (and leased
these hotels to Patriot Operating Company) and Patriot Operating Company
acquired the remaining 17 Participating Leases held by CHC Lease Partners
for aggregate consideration of approximately $105,532. Because the intent
of the accompanying pro forma condensed combined statement of operations
for the six months ended June 30, 1997 is to reflect the expected
continuing impact of the above-described transactions on the Patriot
Companies, the one-time adjustment to write off the cost of acquiring
these leases has been excluded. This expense will be recorded as an
operating expense on Patriot REIT's and Patriot Operating Company's
respective statements of operations; however, the Patriot Companies will
not deduct this expense for purposes of calculating funds from operations,
due to the non-recurring nature of the expense.
187
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet assumes
the following Recent Transactions have occurred as of June 30, 1997:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased this land and the
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) Patriot REIT has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The following unaudited Pro Forma Condensed Combined Balance Sheet also
assumes the following additional transactions have occurred as of June 30,
1997:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition; and
(iii) The CHCI Merger has been consummated on the terms set forth in the
CHCI Merger Agreement.
In management's opinion, all material adjustments necessary to reflect the
effect of these transactions have been made.
The following unaudited Pro Forma Condensed Combined Balance Sheet is
derived from Old Patriot REIT's Consolidated Balance Sheet as of June 30, 1997
and Patriot REIT's and Patriot Operating Company's Combined Balance Sheet as
of June 30, 1997 and should be read in conjunction with the financial
statements filed with the Patriot Companies' Joint Quarterly Report on Form
10-Q for the six months ended June 30, 1997 (which included the financial
statements of Old Patriot REIT as of and for the six months ended June 30,
1997).
The Cal Jockey Merger has been accounted for as a reverse acquisition
whereby Cal Jockey is considered to be the acquired company for accounting
purposes. The unaudited Pro Forma Condensed Combined Balance Sheet reflects
adjustments for the purchase method of accounting whereby the Racecourse
facilities and related leasehold improvements owned by Cal Jockey and Bay
Meadows are adjusted to estimated fair market value and Cal Jockey's and Bay
Meadows' historical shareholders' equity is eliminated. The following Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of June 30, 1997, nor does it purport to represent the
future financial position of Patriot REIT and Patriot Operating Company.
188
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CAL JOCKEY
OLD AND BAY ACQUISITION
PATRIOT MEADOWS OF GAH AND
REIT COMBINED CAL JOCKEY OTHER CHC HOTELS CERTAIN CHCI PRO
HISTORICAL HISTORICAL MERGER ACQUISITIONS ACQUISITION LEASEHOLDS MERGER FORMA
(A) (B) (C) (D) (E) (F) (G) TOTAL
----------- ---------- ---------- ------------ ----------- ----------- -------- -----------
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Net investment in
hotel and resort
properties and land
held for sale....... $ 1,011,940 $ -- $ -- $ 323,682 $ 255,813 $ -- $ -- $ 1,591,435
Net investment in
Racecourse facility
and related
improvements........ -- 21,080 485 (H) -- -- -- -- 21,565
Mortgage notes and
other receivables
from unconsolidated
subsidiaries........ 74,424 -- -- -- -- -- -- 74,424
Other notes and
receivables......... 33,796 -- (2,900)(I) 96,842 (J) (103,125)(K) -- -- 24,613
Management
contracts........... -- -- -- 10,960 (L) -- 9,942 (L) 22,911 (L) 43,813
Trade names and
franchise costs..... -- -- -- 11,500 (L) -- -- 5,000 (L) 16,500
Investment in
unconsolidated
subsidiaries........ 12,448 -- -- -- -- -- -- 12,448
Cash and cash
equivalents......... 8,975 4,256 -- 7,515 (M) -- (1,508)(N) -- 19,238
Restricted cash (O).. -- -- 80,864 (H) (39,320)(O) -- -- -- 41,544
Accounts receivable.. 13,075 163 -- -- -- -- -- 13,238
Goodwill............. -- -- 103,121 (P) 4,888 (P) -- 4,735 (P) 7,269 (P) 120,013
Deferred expenses,
net................. 9,656 -- -- 4,194 (Q) -- -- -- 13,850
Prepaid expenses and
other assets........ 13,087 771 -- 2,838 2,051 1,852 (1,082) 19,517
Deferred income
taxes............... -- 227 -- -- -- -- -- 227
----------- -------- --------- --------- --------- -------- -------- -----------
Total assets........ $ 1,177,401 $ 26,497 $ 181,570 $ 423,099 $ 154,739 $ 15,021 $ 34,098 $ 2,012,425
=========== ======== ========= ========= ========= ======== ======== ===========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Borrowings under a
line of credit
facility and
mortgage notes...... $ 584,294 $ -- $ -- $ 137,056 (R) $ 45,000 $ -- $ -- $ 766,350
Accounts payable and
accrued expenses.... 12,013 5,541 12,339 (S) 2,437 (S) 2,838 (S) 344 (S) -- 35,512
Note payable......... -- 2,900 (2,900)(I) -- -- -- -- --
Due to unconsolidated
subsidiaries........ 6,314 -- -- -- -- -- -- 6,314
Minority interest in
the Patriot
Partnerships........ 118,151 -- -- 37,260 (T) 49,458(T) 66,626 (T) -- 271,495
Minority interest in
consolidated
subsidiaries........ 15,767 -- -- 12,223 (U) -- -- -- 27,990
Shareholders' equity:
Preferred stock..... -- -- -- -- -- 6 (Y) 38 (Z) 44
Common stock........ -- 116 459 (V) 750 (W) 51 (X) -- -- 1,376
Paid-in capital..... 460,029 18,384 171,228 (V) 240,045 (W) 57,392 (X) 13,854 (Y) 88,302 (Z) 1,049,234
Unearned stock
compensation, net.. (16,397) -- -- -- -- -- -- (16,397)
Retained earnings... (2,770) (444) 444 (V) (6,672)(W) -- (65,809)(Y) (54,242)(Z) (129,493)
----------- -------- --------- --------- --------- -------- -------- -----------
Total shareholders'
equity............. 440,862 18,056 172,131 234,123 57,443 (51,949) 34,098 904,764
----------- -------- --------- --------- --------- -------- -------- -----------
Total liabilities
and shareholders'
equity............. $ 1,177,401 $ 26,497 $ 181,570 $ 423,099 $ 154,739 $ 15,021 $ 34,098 $ 2,012,425
=========== ======== ========= ========= ========= ======== ======== ===========
</TABLE>
See notes on following page.
189
<PAGE>
PATRIOT REIT AND PATRIOT OPERATING COMPANY NOTES TO PRO FORMA CONDENSED
COMBINED BALANCE SHEET AS OF JUNE 30, 1997:
(A) Represents the historical consolidated financial position of Old Patriot
REIT as of June 30, 1997.
(B) Represents the historical combined financial position of Cal Jockey and
Bay Meadows as of June 30, 1997 (prior to the Cal Jockey Merger).
(C) Represents adjustments to the historical combined financial position of
Old Patriot REIT, Cal Jockey and Bay Meadows assuming the Cal Jockey
Merger and the related transactions and the PaineWebber Land Sale had been
consummated as of June 30, 1997.
(D) Represents adjustments to the Patriot Companies' pro forma financial
position assuming (i) Patriot REIT had acquired the Recent Acquisitions
(excluding the Park Shore Hotel); (ii) Patriot Operating Company had
completed the Grand Heritage Acquisition and had acquired PAH RSI Lessee;
(iii) the mortgage notes to affiliates of CHC Lease Partners had been
funded; (iv) the Patriot Companies' Old Line of Credit was replaced with
the Revolving Credit Facility and the Term Loan; (v) Patriot REIT acquired
the Participating Note; and (vi) the Offering of 10,580,000 paired shares
of common stock was completed as of June 30, 1997.
(E) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the ten CHC Hotels had been acquired as of June 30,
1997.
(F) Represents adjustments to the Patriot Companies' pro forma financial
position assuming that the GAH Acquisition had occurred and Patriot REIT
had acquired certain Participating Leases held by CHC Lease Partners as of
June 30, 1997.
(G) Represents adjustments to the Patriot Companies' pro forma financial
position assuming the CHCI Merger had been consummated as of June 30,
1997.
(H) Represents adjustments for the purchase method of accounting whereby the
Racecourse facility and related leasehold improvements owned by Cal Jockey
and Bay Meadows are adjusted to estimated fair market value after the sale
of substantially all of the Cal Jockey land to an affiliate of PaineWebber
for $80,864.
(I) Represents the elimination of the note payable between Cal Jockey and Old
Patriot REIT issued in connection with the Cal Jockey Merger.
(J) Represents the following adjustments:
<TABLE>
<S> <C>
To reflect the funding of the mortgage notes to affiliates of
CHC Lease Partners............................................. $82,625
To reflect the acquisition of the Participating Note............ 23,750
To reflect the elimination of the note receivable and accrued
interest between Patriot REIT and PAH RSI Lessee which relates
to certain assets, trade names and right to receive certain
royalty fees which were acquired by Patriot Operating Company.. (9,533)
-------
$96,842
=======
</TABLE>
(K) Represents the elimination of the principal balance of the mortgage notes
held by Patriot REIT encumbering four of the CHC Hotels.
(L) Represents the estimated value of the management contracts and trade names
acquired in the acquisition of Grand Heritage Hotels, Inc., PAH RSI
Lessee, the GAH Acquisition and in the CHCI Merger.
(M) Represents the following adjustments:
<TABLE>
<S> <C>
To reflect cash payments made in the acquisition of certain
of the Recent Acquisitions.................................. $ (5,974)
To reflect the remaining net proceeds from the Offering...... 13,312
To reflect cash balances acquired in the Grand Heritage Ac-
quisition................................................... 177
--------
$ 7,515
========
</TABLE>
(N) Represents cash paid for working capital balances related to the GAH hotel
leases and management contracts.
(O) The restricted cash balance represents the cash proceeds from the
PaineWebber Land Sale (in the amount of $80,864) that were placed in a
restricted trust account in order to facilitate a tax-deferred, like-kind
exchange through the acquisition of suitable hotel properties. In order to
qualify as a tax-deferred exchange, suitable properties must be located
and exchanged and the exchange must be effectuated within a relatively
short time period allowed by Internal Revenue Service regulations.
Management believes that the three hotel properties that were purchased
with PaineWebber Land Sale proceeds are suitable hotel properties that
qualify as a tax-deferred, like-kind exchange.
(P) Represents the purchase consideration in excess of the fair market value
of the net assets. In the case of Cal Jockey and Bay Meadows, management
primarily attributes this amount to the paired share structure that,
subsequent to the Cal Jockey Merger, enables Patriot REIT and Patriot
Operating Company to be a fully integrated owner and operator of hotels.
The paired share tax treatment is no longer available under the Internal
Revenue Code of 1986, as amended (the "Code"); however, Cal Jockey and Bay
Meadows are one of only four publicly-held companies in existence for
which this structure has been "grandfathered."
(Q) Represents adjustments to reflect deferred loan costs associated with the
closing of the Revolving Credit Facility, net of the write-off of $2,910
of unamortized deferred loan costs associated with the Old Line of Credit.
(R) Represents the following adjustments:
<TABLE>
<S> <C>
To reflect replacement of the Old Line of Credit with the
Revolving Credit Facility and funds drawn on the Revolving
Line of Credit related to the acquisition of the Recent
Acquisitions (excluding the Park Shore Hotel)................. $135,389
To reflect mortgage debt assumed or acquired in the acquisition
of the Recent Acquisitions.................................... 104,667
To reflect the funds drawn to acquire the Participating Note... 21,375
</TABLE>
190
<PAGE>
<TABLE>
<S> <C>
To reflect the funding of the Paine Webber Mortgage
Financing................................................... 103,000
To reflect application of net proceeds from the Offering to
reduce amounts outstanding under the Revolving Credit
Facility.................................................... (227,375)
---------
$ 137,056
=========
</TABLE>
(S) Represents adjustment in the amount of $12,339 for accrued Cal Jockey
Merger costs including legal and accounting fees, printing and various
other professional fees incurred in connection with the Cal Jockey Merger
and the related transactions. Other amounts represent adjustments for
accounts payable and accrued expenses assumed or incurred in connection
with the acquisition of hotel properties, the Grand Heritage Acquisition
and the GAH Acquisition.
(T) Represents adjustments to reflect:
<TABLE>
<S> <C>
The issuance of 614,046 OP Units of the Patriot Partnerships in
connection with the acquisition of the Met-Doubletree Hotels.. $ 15,000
The issuance of 931,972 Class A preferred OP Units of the
Patriot Operating Company Partnership in connection with the
Grand Heritage Acquisition.................................... 22,260
---------
$ 37,260
=========
To reflect the issuance of 2,174,773 OP Units of the Patriot
Partnerships in connection with the acquisition of the CHC
Hotels........................................................ $ 49,458
=========
To reflect the issuance of 2,388,932 OP Units of the Patriot
Operating Company Partnership and the Patriot REIT Partnership
and 476,682 preferred OP Units of the Patriot Operating
Company Partnership:
In connection with the GAH Acquisition........................ $ 13,860
In connection with the acquisition of the Participating Leases
for eight hotels............................................. 52,766
---------
$ 66,626
=========
</TABLE>
(U) Represents cash and property contributions of the minority interest
partners in the consolidated subsidiaries which were formed to acquire
eight of the Recent Acquisition hotel properties.
(V) Represents the exchange of shares of Old Patriot REIT Common Stock for
paired shares of Patriot REIT Common Stock and Patriot Operating Company
Common Stock. Pursuant to the Cal Jockey Merger Agreement, Old Patriot
REIT stockholders were entitled to receive, for each share of Old Patriot
REIT Common Stock held by them at the effective time of the Cal Jockey
Merger, 0.51895 shares of Patriot REIT Common Stock and 0.51895 shares of
Patriot Operating Company Common Stock, which shares are paired and
transferable only as a single unit. At June 30, 1997, Old Patriot REIT had
44,311,225 shares of Old Patriot REIT Common Stock outstanding which were
assumed to be exchanged for approximately 22,995,310 paired shares of
Patriot REIT Common Stock and Patriot Operating Company Common Stock,
resulting in an increase in common stock of approximately $459, which has
been offset by a corresponding adjustment to paid-in capital.
Pursuant to the Cal Jockey Merger Agreement, Old Patriot REIT stockholders
received 0.51895 shares of Patriot REIT Common Stock and 0.51895 shares of
Patriot Operating Company Common Stock for each share of Old Patriot REIT
Common Stock. The estimated value of the Cal Jockey and Bay Meadows paired
shares, based on the closing price of Old Patriot REIT's Common Stock on
October 30, 1996, of $17.125 (adjusted for the stock splits and Cal Jockey
Merger conversion of shares), is $33.00 per paired share. Based on 5,763,257
paired shares of Cal Jockey common stock and Bay Meadows common stock
outstanding, the total purchase consideration is approximately $190,187. The
adjustments to shareholders' equity eliminate the historical equity accounts
of Cal Jockey and Bay Meadows which total $18,056 and record equity based on
the number of paired shares of Cal Jockey common stock and Bay Meadows
common stock that remained outstanding after the Cal Jockey Merger at $33.00
per paired share.
(W) Represents the following adjustments to Shareholders' Equity:
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ -------- --------
<S> <C> <C> <C>
Pursuant to the Offering....................... $212 $240,583 $ --
Write-off of unamortized deferred loan costs... -- -- (2,910)
Write-off the estimated cost to acquire three
Participating Leases in the Grand Heritage Ac-
quisition..................................... -- -- (3,762)
Pursuant to the 1.927-for-1 stock split........ 538 (538) --
---- -------- -------
$750 $240,045 $(6,672)
==== ======== =======
</TABLE>
The Patriot Companies completed the Offering of 10,580,000 Paired Shares
with a combined par value of $0.02 per Paired Share, resulting in net
proceeds of approximately $240,795.
In connection with the replacement of the Old Line of Credit with the
Revolving Credit Facility, Patriot REIT will write-off unamortized deferred
loan costs related to the Old Line of Credit. This amount will be reported
as an extraordinary item in Patriot REIT's results of operations and has
been reflected as an adjustment to retained earnings for purposes of pro
forma balance sheet presentation.
In connection with the Grand Heritage Acquisition, Patriot Operating Company
acquired three Participating Leases related to three hotels that Patriot
REIT had leased to Grand Heritage Leasing, L.L.C. The cost of acquiring
these leases will be reflected as a one-time
191
<PAGE>
charge to operating expense in the Patriot Operating Company results of
operations and has been reflected as an adjustment to retained earnings for
pro forma presentation purposes.
The reclassification entry of $538 pursuant to the July 1997 1.927-for-1
stock split effected in the form of a stock dividend, represents the
reclassification of the par value (at $0.02 per paired share) of the common
stock issued in connection with the stock split.
(X) Represents adjustments to reflect the issuance of 2,534,656 Paired Shares
in connection with the acquisition of the ten CHC Hotels. The amounts
include adjustments to reflect the acquisition of the remaining
approximate 50% interest in the Omni Inner Harbor Hotel for 830,713 Paired
Shares.
(Y) Represents the following adjustments to Shareholders' Equity:
<TABLE>
<CAPTION>
PREFERRED PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------- --------
<S> <C> <C> <C>
Pursuant to issuance of a total of approxi-
mately 596,129 shares of Series A Preferred
Stock and Series B Preferred Stock of Pa-
triot Operating Company in connection with
the CHCI Merger and related
transactions................................ $ 6 $13,854 $(13,043)
Write-off the estimated cost to acquire eight
Participating Leases related to hotels
leased by Patriot REIT to CHC Lease Part-
ners........................................ -- -- (52,766)
---- ------- --------
$ 6 $13,854 $(65,809)
==== ======= ========
</TABLE>
The adjustment to retained earnings in the amount of $13,043 represents the
estimated cost of acquiring certain management contracts related to hotels
owned by Patriot REIT. The adjustment to retained earnings in the amount of
$52,766 represents the estimated cost of acquiring eight leaseholds related
to Participating Lease agreements for eight hotels leased by CHC Lease
Partners. The cost of acquiring these management contracts and leaseholds
will be recorded as an operating expense in Patriot Operating Company's and
Patriot REIT's respective results of operations. However, because the intent
of the pro forma financial statements is to reflect, among other things, the
expected continuing impact of the CHCI Merger and the GAH Acquisition on the
Patriot Companies, this one-time adjustment has been excluded from the pro
forma statements of operations and has been reflected as an adjustment to
retained earnings for pro forma presentation purposes.
(Z) Represents the following adjustments to Shareholders' Equity:
<TABLE>
<CAPTION>
PREFERRED PAID-IN RETAINED
STOCK CAPITAL EARNINGS
--------- ------- --------
<S> <C> <C> <C>
Pursuant to issuance of approximately a to-
tal of approximately 3,799,571 shares of
Series A Preferred Stock and Series B Pre-
ferred Stock of Patriot Operating Company
in connection with the CHCI Merger........ $ 38 $88,302 $ --
Write-off the estimated cost to acquire 17
Participating Leases related to hotels
leased by Patriot REIT to CHC Lease Part-
ners and related
transactions.............................. -- -- (52,766)
Write-off unamortized lease inducement
costs related to the 25 Participating
Leases.................................... -- -- (1,476)
---- ------- --------
$ 38 $88,302 $(54,242)
==== ======= ========
</TABLE>
In connection with the CHCI Merger, Patriot Operating Company will acquire
the remaining 17 Participating Leases held by CHC Lease Partners, issuing a
combination of Operating Company Series A Preferred Stock and Operating
Company Series B Preferred Stock in connection with the transaction. The
cost of acquiring these leases will be recorded as an operating expense in
Patriot Operating Company's results of operations. However, because the
intent of the pro forma financial statements is to reflect, among other
things, the expected continuing impact of the CHCI Merger and the GAH
Acquisition on Patriot Operating Company, this one-time adjustment has been
excluded from the pro forma statements of operations and has been reflected
as an adjustment to retained earnings for pro forma presentation purposes.
192
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
OLD PATRIOT
REIT CAL JOCKEY RECENT CHC HOTELS
HISTORICAL HISTORICAL TRANSACTIONS ACQUISITION OTHER PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $75,893 $ -- $98,428 (E) $39,702(E) $ (155) $213,868
Rental of Racecourse
facility and land..... -- 4,918 1,027 (F) -- -- 5,945
Interest and other in-
come.................. 600 494 1,203 (G) -- -- 2,297
------- ------- ------- ------- ------- --------
Total revenue.......... 76,493 5,412 100,658 39,702 (155) 222,110
------- ------- ------- ------- ------- --------
Expenses:
Ground lease expense... 1,075 -- 4,238 (H) 380 -- 5,693
General and administra-
tive.................. 4,500 5,696 (3,399)(I) -- -- 6,797
Interest expense....... 7,380 -- 46,731 (J) 7,753(J) 3,013 (J) 64,877 (R)
Real estate and
personal property
taxes and casualty
insurance............. 7,150 -- 10,121 (K) 5,217(K) -- 22,488
Depreciation and amor-
tization.............. 17,420 932 32,894 (L) 11,477(L) -- 62,723
------- ------- ------- ------- ------- --------
Total expenses......... 37,525 6,628 90,585 24,827 3,013 162,578
------- ------- ------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 38,968 (1,216) 10,073 14,875 (3,168) 59,532
Equity in earnings of
unconsolidated
subsidiaries........... 5,845 -- 1,714 (M) -- -- 7,559
------- ------- ------- ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 44,813 (1,216) 11,787 14,875 (3,168) 67,091
Income tax provision.... -- -- -- -- (170)(N) (170)
------- ------- ------- ------- ------- --------
Income (loss) before mi-
nority interests....... 44,813 (1,216) 11,787 14,875 (3,338) 66,921
Minority interest in
Patriot REIT
Partnership........... (6,767) -- 448 (O) -- (4,291)(O) (10,610)
Minority interest in
consolidated
subsidiaries.......... (55) -- (1,777)(P) -- -- (1,832)
------- ------- ------- ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $37,991 $(1,216) $10,458 $14,875 $(7,629) $ 54,479 (R)
======= ======= ======= ======= ======= ========
Net income (loss) per
common share (Q)....... $ 1.06 $ (0.11) $ 0.74 (R)
======= ======= ========
</TABLE>
See notes on following page.
193
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996:
(A) Represents Old Patriot REIT's historical results of operations for the
year ended December 31, 1996.
(B) Represents the historical results of operations of Patriot REIT (formerly
known as Cal Jockey) for the year ended December 31, 1996.
(C) Represents adjustment to Patriot REIT's results of operations assuming
(i) the Cal Jockey Merger and the Related Transactions have been
consummated; (ii) the PaineWebber Land Sale has been consummated, the
PaineWebber affiliate has leased the Racecourse land to Patriot REIT and
Patriot REIT has subleased this land to Patriot Operating Company; (iii)
Patriot REIT has leased certain land to Borders, Inc.; (iv) Patriot REIT
has completed the Recent Acquisitions (excluding the Park Shore Hotel);
(v) the mortgage notes to affiliates of CHC Lease Partners have been
funded; (vi) Patriot REIT has replaced the Old Line of Credit with the
Revolving Credit Facility and the Term Loan; (vii) the Offering has been
completed; and (viii) the 24 hotels acquired by Patriot REIT, the private
placement of equity securities and the public offering of common stock
completed by Old Patriot REIT during 1996 had occurred as of January 1,
1996.
(D) Represents adjustment to Patriot REIT's results of operations assuming
the CHC Hotels had been acquired as of January 1, 1996.
(E) Represents adjustments to participating lease revenue assuming the 77
hotels owned by Patriot REIT and its subsidiaries (excluding the Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased
to Lessees and excluding the Park Shore Hotel) had been leased to the
Lessees or Patriot Operating Company as of January 1, 1996.
(F) Represents adjustments to Racecourse facility rental revenue as a result
of (i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and the PaineWebber Land Sale and (ii) rental income related to the
Borders Lease.
(G) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees................................................... $ 1,170
Related to the $500 mortgage note receivable issued to the
Patriot REIT Partnership by NorthCoast Lessee.................. 48
Related to interest earned from notes receivable from an
unconsolidated subsidiary...................................... 21
Related to the elimination of interest earned on the $2,900 note
receivable issued to Old Patriot REIT by Cal Jockey in
connection with the Cal Jockey Merger.......................... (36)
-------
$ 1,203
=======
</TABLE>
(H) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber of $3,964 and pro forma ground lease
payments to be made with respect to certain of the hotels of $274.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Related to elimination of administrative salaries and other
expenses not expected to be incurred by Patriot REIT........... $ (568)
Related to elimination of non-recurring legal fees.............. (1,344)
Related to elimination of Cal Jockey Merger related costs....... (3,284)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public
company and the continued growth of Patriot REIT............... 150
Related to the annual amortization of unearned stock
compensation computed on a straight-line basis over the 3 to 5-
year vesting periods........................................... 1,647
-------
$(3,399)
=======
</TABLE>
(J) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense...................................... $ 7,380
Interest expense related to 47 hotels acquired by Patriot REIT
since January 1, 1996 (excluding the Park Shore Hotel and the
CHC Hotels)..................................................... 37,569
Interest expense related to the Subscription Notes payable to
Patriot Operating Company....................................... 4,712
Interest expense related to amortization of deferred loan costs.. 4,397
Interest expense related to amortization of capitalized
interest........................................................ 53
Interest expense related to four of the CHC Hotels encumbered by
mortgage loans held by Patriot REIT............................. 7,753
Interest expense related to the acquisition of the 10 CHC
Hotels.......................................................... 3,013
-------
$64,877
=======
</TABLE>
(K) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the 47 hotels acquired since
January 1, 1996 (except for the Park Shore Hotel) and the 10 CHC Hotels.
194
<PAGE>
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to 47 hotels acquired by Patriot REIT
since January 1, 1996 (excluding the Park Shore Hotel and the
CHC Hotels).................................................. $30,603
Reduction of depreciation expense related to the Racecourse
facility..................................................... (93)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value...................... 2,384
-------
$32,894
=======
Depreciation related to the CHC Hotels........................ $11,477
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements,
20 years for the Racecourse facility and 5 to 7 years for furniture,
fixtures and equipment ("F, F & E"). These estimated useful lives are based
on management's knowledge of the properties and the industry in general.
Amortization of goodwill is computed using the straight-line method over a
40 year estimated useful life. Because the paired share structure is
"grandfathered" under the Code, management believes the life of the paired
share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets.
(M) Represents equity in income of PAH WindWatch, L.L.C. and PAH Boulders,
Inc. acquired in September 1996 and January 1997, respectively.
(N) Represents an adjustment for estimated state income tax liabilities.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition and the CHCI Merger is approximately 16.3%.
(P) Represents the minority interest related to the partnerships with an
affiliate of Doubletree Hotels Corporation and the limited liability
companies which own the Snavely Portfolio hotels assuming such entities
had been formed and the 15 hotels owned by such entities had been
acquired at January 1, 1996.
(Q) Pro forma earnings per share is computed based on 73,516 weighted average
common shares and common share equivalents outstanding for the period.
The number of shares used for the calculation includes adjustments to
reflect the impact of the conversion of shares of Patriot Operating
Company preferred stock into Paired Shares. In addition, the net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for (i) the March 1997 2-for-
1 stock split on Old Patriot REIT Common Stock effected in the form of a
stock dividend, (ii) the conversion of each share of Old Patriot REIT
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger,
and (iii) the July 1997 1.927-for-1 stock split effected in the form of a
stock dividend, as applicable. Historical basis earnings per share is
computed based on 35,938 and 11,106 weighted average common shares and
common share equivalents outstanding for Old Patriot REIT and Cal Jockey,
respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.79 per common share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(R) If the interest rate on the Revolving Credit Facility increased by 0.25%,
interest expense would increase to approximately $66,452, net income
would decrease to $53,161 and net income per common share would decrease
to $0.72.
195
<PAGE>
PATRIOT REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OLD PATRIOT
REIT CAL JOCKEY RECENT CHC HOTELS
HISTORICAL HISTORICAL TRANSACTIONS ACQUISITION OTHER PRO FORMA
(A) (B) (C) (D) ADJUSTMENTS TOTAL
----------- ---------- ------------ ----------- ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $71,986 $ -- $25,975 (E) $19,465(E) $ (78) $117,348
Rental of Racecourse
facility and land..... -- 2,017 785 (F) -- -- 2,802
Interest and other
income................ 1,132 1,715 (41)(G) -- -- 2,806
------- ------ ------- ------- ------- --------
Total revenue.......... 73,118 3,732 26,719 19,465 (78) 122,956
------- ------ ------- ------- ------- --------
Expenses:
Ground lease expense... 683 -- 1,982 (H) 139 -- 2,804
General and
administrative........ 5,081 2,657 (2,661)(I) -- -- 5,077
Interest expense....... 17,328 -- 9,948 (J) 3,896(J) 1,522 (J) 32,694 (Q)
Real estate and
personal property
taxes and casualty
insurance............. 6,966 -- 2,770 (K) 2,348(K) -- 12,084
Depreciation and
amortization.......... 18,006 478 8,566 (L) 5,138(L) -- 32,188
------- ------ ------- ------- ------- --------
Total expenses......... 48,064 3,135 20,605 11,521 1,522 84,847
------- ------ ------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 25,054 597 6,114 7,944 (1,600) 38,109
Equity in earnings of
unconsolidated
subsidiaries.......... 3,093 -- -- -- -- 3,093
------- ------ ------- ------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 28,147 597 6,114 7,944 (1,600) 41,202
Income tax provision... -- -- -- -- (85)(M) (85)
------- ------ ------- ------- ------- --------
Income (loss) before
minority interests..... 28,147 597 6,114 7,944 (1,685) 41,117
Minority interest in
Patriot REIT
Partnership........... (4,534) -- 537 (N) -- (2,544)(N) (6,541)
Minority interest in
consolidated
subsidiaries.......... (447) -- (540)(O) -- -- (987)
------- ------ ------- ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $23,166 $ 597 $ 6,111 $ 7,944 $(4,229) $ 33,589 (Q)
======= ====== ======= ======= ======= ========
Net income (loss) per
common share (P)....... $ 0.52 $ 0.05 $ 0.45 (Q)
======= ====== ========
</TABLE>
See notes on following page.
196
<PAGE>
NOTES TO PATRIOT REIT PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997:
(A) Represents Old Patriot REIT's historical results of operations for the
six months ended June 30, 1997.
(B) Represents the historical results of operations of Patriot REIT (formerly
known as Cal Jockey) for the six months ended June 30, 1997.
(C) Represents adjustments to Patriot REIT's results of operations assuming
(i) the Cal Jockey Merger and the related transactions have been
consummated; (ii) the PaineWebber Land Sale has been consummated, the
PaineWebber affiliate has leased the Racecourse land to Patriot REIT and
Patriot REIT has subleased this land to Patriot Operating Company; (iii)
Patriot REIT has leased certain land to Borders, Inc.; (iv) Patriot REIT
has completed the Recent Acquisitions (excluding the Park Shore Hotel);
(v) the mortgage notes to affiliates of CHC Lease Partners have been
funded; (vi) Patriot REIT has replaced the Old Line of Credit with the
Revolving Credit Facility and the Term Loan; and (vii) the Offering has
been completed as of January 1, 1996.
(D) Represents adjustments to Patriot REIT's results of operations assuming
the CHC Hotels had been acquired as of January 1, 1996.
(E) Represents adjustments to participating lease revenue assuming the 77
hotels owned by Patriot REIT and its subsidiaries (excluding the Crowne
Plaza Ravinia Hotel and the Wyndham WindWatch Hotel which are not leased
to Lessees and excluding the Park Shore Hotel) had been leased to the
Lessees or Patriot Operating Company as of January 1, 1996.
(F) Represents adjustments to Racecourse facility rental revenue as a result
of (i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and the PaineWebber Land Sale and (ii) rental income related to the
Borders Lease.
(G) Represents the following adjustments to interest and other income:
<TABLE>
<S> <C>
Related to interest earned on notes receivable issued to the
Patriot REIT Partnership by PAH RSI Lessee in connection with
the sale of certain assets and the right to receive certain
royalty fees.................................................. $ 52
Related to interest earned on the mortgage notes receivable
from affiliates of CHC Lease Partners......................... (14)
Related to the elimination of interest earned on the $2,900
note receivable issued to Old Patriot REIT by Cal Jockey in
connection with the Cal Jockey Merger......................... (79)
--------
$ (41)
========
</TABLE>
(H) Represents ground lease payments pursuant to the ground lease agreement
with an affiliate of PaineWebber.
(I) Represents elimination of approximately $2,092 of non-recurring legal
fees and Cal Jockey Merger related costs and adjustment to the
amortization of unearned stock compensation computed on a straight-line
basis over the 3 to 5-year vesting periods of $569.
(J) Interest expense consists of the following components:
<TABLE>
<S> <C>
Historical interest expense...................................... $17,328
Interest expense related to the 23 hotels acquired by Patriot
REIT since January 1, 1997 (excluding the Park Shore Hotel and
the CHC Hotels)................................................. 5,367
Interest expense related to the Subscription Notes payable to
Patriot Operating Company....................................... 2,356
Interest expense related to amortization of deferred loan costs.. 2,199
Interest expense related to amortization of capitalized
interest........................................................ 26
Interest expense related to four of the CHC Hotels encumbered by
mortgage loans held by Patriot REIT............................. 3,896
Interest expense related to the acquisition of the 10 CHC
Hotels.......................................................... 1,522
-------
$32,694
=======
</TABLE>
(K) Represents real estate and personal property taxes and casualty insurance
to be paid by Patriot REIT related to the 23 hotels acquired since
January 1, 1997 (except for the Park Shore Hotel) and the 10 CHC Hotels.
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Depreciation related to 23 hotels acquired by Patriot REIT
since January 1, 1997 (excluding the Park Shore Hotel and the
CHC Hotels).................................................. $ 7,433
Reduction of depreciation expense related to the Racecourse
facility..................................................... (59)
Amortization of goodwill resulting from the adjustment for
purchase method of accounting whereby the Racecourse facility
and retained leasehold improvements owned by Cal Jockey are
adjusted to estimated fair market value...................... 1,192
-------
$ 8,566
=======
Depreciation related to the CHC Hotels........................ $ 5,138
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and improvements,
20 years for the Racecourse facility and 5 to 7 years for F, F & E. These
estimated useful lives are based on management's knowledge of the properties
and the industry in general. Amortization of goodwill is computed using the
straight-line method over a 40 year estimated useful life. Because the
paired share structure is "grandfathered" under the Code, management
believes the life of the paired share structure is perpetual. Under
generally accepted accounting principles, however, the maximum amortization
period is 40 years for intangible assets.
197
<PAGE>
(M) Represents an adjustment for estimated state income tax liabilities.
(N) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition and the CHCI Merger is approximately 16.3%.
(O) Represents adjustments to the minority interest related to the
partnerships with an affiliate of Doubletree Hotels Corporation and the
limited liability companies which own the hotels in the Snavely Portfolio
assuming such entities had been formed and the 15 hotels owned by such
entities had been acquired as of January 1, 1996.
(P) Pro forma earnings per share is computed based on 74,045 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend, as applicable. Historical basis
earnings per share is computed based on 44,783 and 11,106 weighted average
common shares and common share equivalents outstanding for Old Patriot
REIT and Cal Jockey, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be $0.49 per common share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
(Q) If the interest rate on the Revolving Credit Facility increased by 0.25%,
interest expense would increase to approximately $33,483, net income would
decrease to $32,928 and net income per common share would decrease to
$0.44.
198
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
BAY CHC HOTELS CHCI
MEADOWS RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
---------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $145,801 $187,365 $ -- $ 5,282 $ -- $338,448
Other hotel revenues... -- 132,243 97,250 -- 4,351 -- 233,844
Racecourse facility
revenue............... 51,946 -- -- -- -- -- 51,946
Management fee and
service fee income.... -- 3,165 -- 7,270 9,032 (5,945)(F) 13,522
Interest and other
income................ 1,526 7,757 (G) -- 14 715 -- 10,012
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 53,472 288,966 284,615 7,284 19,380 (5,945) 647,772
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--
hotel operations...... -- 124,924 112,873 -- 3,995 -- 241,792
Racecourse facility
operations............ 45,658 693 (H) -- -- -- -- 46,351
Management company,
service department and
development costs..... -- 1,595 -- 4,882 4,666 -- 11,143
General and
administrative........ 4,381 28,264 (I) 28,568 (J) 1,056(J) 9,431 (J) -- 71,700
Ground lease expense... -- 733 -- -- -- -- 733
Repair and
maintenance........... -- 16,777 13,120 -- -- -- 29,897
Utilities.............. -- 12,676 14,167 -- -- -- 26,843
Marketing.............. 1,436 22,717 27,085 -- -- -- 51,238
Management fees........ -- 8,743 6,671 -- -- (5,945)(F) 9,469
Depreciation and
amortization.......... 754 1,591 (K) -- 112 853 7,038 (K) 10,348
Participating lease
payments.............. -- 78,240 (L) 93,879 (L) -- -- -- 172,119
Interest expense....... 130 1,240 -- 23 3,304 (3,304)(M) 1,393
Real estate and
personal property
taxes and casualty
insurance............. 398 -- -- -- -- -- 398
------- -------- -------- ------ ------- ------- --------
Total expenses......... 52,757 298,193 296,363 6,073 22,249 (2,211) 673,424
------- -------- -------- ------ ------- ------- --------
Income (loss) before in-
come tax provision and
minority interests..... 715 (9,227) (11,748) 1,211 (2,869) (3,734) (25,652)
Income tax provision... (260) -- -- -- (92)(N) (408)(N) (760)
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... 455 (9,227) (11,748) 1,211 (2,961) (4,142) (26,412)
Minority interest in
Patriot Operating
Company Partnership... -- 1,123 (O) -- -- -- 3,314 (O) 4,437
------- -------- -------- ------ ------- ------- --------
Net income (loss) appli-
cable to common share-
holders................ $ 455 $ (8,104) $(11,748) $1,211 $(2,961) $ (828) $(21,975)
======= ======== ======== ====== ======= ======= ========
Net income per common
share (P).............. $ 0.04 $ (0.30)
======= ========
</TABLE>
See notes on following page.
199
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996:
(A) Represents the historical results of operations of Patriot Operating
Company (formerly known as Bay Meadows) for the year ended December 31,
1996.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 23 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 10 of the Recent Acquisitions (the four hotels in the Snavely
Portfolio, the four Met-Doubletree Hotels, the Ambassador West Hotel and
the Union Station Hotel), the eight hotels previously leased to PAH RSI
Lessee, the Mayfair Suites Hotel, the Tutwiler Hotel, the Holiday Inn
Redmont Hotel, the Doubletree Hotel at Allen Center and the Doubletree
Hotel in Tulsa, Oklahoma.
(C) Represents the combined results of operations for the year ended December
31, 1996 of the 10 CHC Hotels and 25 hotels leased by CHC Lease Partners
assuming that such hotels were leased to Patriot Operating Company as of
January 1, 1996.
(D) Represents the results of operations of GAH for the year ended December
31, 1996, assuming it had been acquired by Patriot Operating Company as of
January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the twelve months ended November 30, 1996,
assuming such contracts had been acquired by Patriot Operating Company as
of January 1, 1996.
(F) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger, such hotels are assumed to be managed by
Patriot Operating Company.
(G) Adjustments to interest and other income consist of the following
components:
<TABLE>
<S> <C>
Interest and other income related to PAH RSI Lessee............. $ 2,030
Interest income related to the Subscription Notes receivable
from Patriot REIT.............................................. 4,712
Interest income related to the Participating Note............... 1,015
-------
$ 7,757
=======
</TABLE>
(H) Represents adjustment to Racecourse facility rental expense as a result of
(i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and (ii) the PaineWebber Land Sale.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Represents expense related to the hotels recently acquired..... $24,497
Represents general liability insurance expense................. 1,441
Related to elimination of costs related to the Cal Jockey Merg-
er............................................................ (861)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public com-
pany and the continued growth of Patriot Operating Company.... 300
Represents expense related to the annual amortization of un-
earned stock compensation computed on a straight-line basis
over the 3 to 5-year vesting periods.......................... 2,887
-------
$28,264
=======
</TABLE>
(J) Represent general and administrative expense related to the 10 CHC Hotels
and general and administrative expense related to the contracts acquired
in connection with the GAH Acquisition and the CHCI Merger.
(K) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to increase depreciation related to F, F & E......... $ 245
Adjustment to reflect amortization of goodwill.................. 438
Adjustment to reflect amortization of trade names............... 125
Adjustment to reflect amortization of management contract
costs.......................................................... 783
-------
$ 1,591
=======
Adjustment to increase depreciation related to F, F & E......... $ 86
Adjustment to reflect amortization of goodwill.................. 600
Adjustment to reflect amortization of trade names............... 250
Adjustment to amortization of management contract costs......... 6,102
-------
$ 7,038
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
(L) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
200
<PAGE>
(M) Represents the elimination of interest expense related to debt that
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(N) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustments to the operating results of
Patriot Operating Company for the year ended December 31, 1996.
(O) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition and the CHCI Merger is approximately 16.8%.
(P) Pro forma earnings per share is computed based on 73,516 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for (i) the March 1997 2-for-1
stock split on Old Patriot REIT Common Stock effected in the form of a
stock dividend, (ii) the conversion of each share of Old Patriot REIT
Common Stock into 0.51895 Paired Shares issued in the Cal Jockey Merger,
and (iii) the July 1997 1.927-for-1 stock split effected in the form of a
stock dividend, as applicable. Historical basis earnings per share is
computed based on 11,106 weighted average common shares and common share
equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.32 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
201
<PAGE>
PATRIOT OPERATING COMPANY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
CHC HOTELS CHCI
BAY MEADOWS RECENT AND LEASE GAH HOSPITALITY
HISTORICAL TRANSACTIONS ACQUISITION HISTORICAL DIVISION PRO FORMA
(A) (B) (C) (D) (E) OTHER TOTAL
----------- ------------ ----------- ---------- ----------- ------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ -- $ 80,223 $103,839 $ -- $ 2,778 $ -- $186,840
Other hotel revenues... -- 72,621 51,731 -- 2,502 -- 126,854
Racecourse facility
revenue............... 22,538 -- -- -- -- -- 22,538
Management fee and
service fee income.... -- 1,603 -- 4,831 4,732 (3,300)(F) 7,866
Interest and other
income................ 525 3,748 (G) 685 10 396 -- 5,364
------- -------- -------- ------ ------- ------- --------
Total revenue.......... 23,063 158,195 156,255 4,841 10,408 (3,300) 349,462
------- -------- -------- ------ ------- ------- --------
Expenses:
Departmental costs--
hotel operations...... -- 66,229 59,080 -- 2,175 -- 127,484
Racecourse facility
operations............ 19,664 618 (H) -- -- -- -- 20,282
Management company,
service department and
development costs..... -- 1,088 -- 2,978 2,573 -- 6,639
General and
administrative........ 3,486 12,726 (I) 14,689 (J) 619(J) 6,512 (J) (1,700)(K) 36,332
Ground lease expense... -- 433 13 -- -- -- 446
Repair and
maintenance........... -- 8,994 6,888 -- -- -- 15,882
Utilities.............. -- 5,974 6,913 -- -- -- 12,887
Marketing.............. 497 11,225 14,907 -- -- -- 26,629
Management fees........ -- 5,566 3,734 -- -- (3,300)(F) 6,000
Depreciation and
amortization.......... 358 754 (L) -- 78 399 3,524 (L) 5,113
Participating lease
payments.............. -- 44,964 (M) 50,730 (M) -- -- -- 95,694
Interest expense....... 27 585 -- 11 1,413 (1,413)(N) 623
Real estate and
personal property
taxes and casualty
insurance............. 220 -- -- -- -- -- 220
------- -------- -------- ------ ------- ------- --------
Total expenses......... 24,252 159,156 156,954 3,686 13,072 (2,889) 354,231
------- -------- -------- ------ ------- ------- --------
Income (loss) before
income tax provision
and minority
Interests.............. (1,189) (961) (699) 1,155 (2,664) (411) (4,769)
Income tax (provision)
benefit............... 472 -- -- -- (53)(O) (197)(O) 222
------- -------- -------- ------ ------- ------- --------
Income (loss) before
minority interest...... (717) (961) (699) 1,155 (2,717) (608) (4,547)
Minority interest in
Patriot Operating
Company Partnership... -- 215 (P) -- -- -- 549 (P) 764
------- -------- -------- ------ ------- ------- --------
Net income (loss)
applicable to common
shareholders........... $ (717) $ (746) $ (699) $1,155 $(2,717) $ (59) $ (3,783)
======= ======== ======== ====== ======= ======= ========
Net income (loss) per
common share (Q)....... $ (0.06) $ (0.05)
======= ========
</TABLE>
See notes on following page.
202
<PAGE>
NOTES TO PATRIOT OPERATING COMPANY PRO FORMA CONDENSED CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997:
(A) Represents the historical results of operations of Patriot Operating
Company (formerly known as Bay Meadows) for the six months ended June 30,
1997.
(B) Represents adjustments to Patriot Operating Company's results of
operations assuming 23 of Patriot REIT's hotel properties had been leased
to Patriot Operating Company as of January 1, 1996. These hotel properties
include 10 of the Recent Acquisitions (the four hotels in the Snavely
Portfolio, the four Met-Doubletree Hotels, the Ambassador West Hotel and
the Union Station Hotel), the eight hotels previously leased to PAH RSI
Lessee, the Mayfair Suites Hotel, the Tutwiler Hotel, the Holiday Inn
Redmont Hotel, the Doubletree Hotel at Allen Center and the Doubletree
Hotel in Tulsa, Oklahoma.
(C) Represents the combined results of operations for the six months ended
June 30, 1997 of the 10 CHC Hotels and 25 leases of CHC Lease Partners
leased by CHC Lease Partners assuming that such hotels were leased to
Patriot Operating Company as of January 1, 1996.
(D) Represents the results of operations of GAH for the six months ended June
30, 1997, assuming it had been acquired by Patriot Operating Company as of
January 1, 1996.
(E) Represents the results of operations for the contracts acquired as a
result of the CHCI Merger for the six months ended May 31, 1997, as if
they were acquired by Patriot Operating Company as of January 1, 1996.
(F) Represents the elimination of management fees for Patriot REIT hotels
previously managed by Gencom and CHCI, which subsequent to the GAH
Acquisition and the CHCI Merger such hotels are assumed to be managed by
Patriot Operating Company.
(G) Adjustments to interest and other income consists of the following
components:
<TABLE>
<S> <C>
Interest and other income related to PAH RSI Lessee............. $ 885
Interest income related to the Subscription Notes receivable
from Patriot REIT.............................................. 2,356
Interest income related to the Participating Note............... 507
-------
$ 3,748
=======
</TABLE>
(H) Represents adjustment to Racecourse facility rental expense as a result of
(i) the new lease agreement between Patriot REIT and Patriot Operating
Company subsequent to the Cal Jockey Merger and the related transactions
and (ii) the PaineWebber Land Sale.
(I) Represents the following adjustments to general and administrative
expense:
<TABLE>
<S> <C>
Represent expense related to the hotels recently acquired...... $12,365
Represents general liability insurance expense................. 559
Related to elimination of costs related to the Cal Jockey Merg-
er............................................................ (1,792)
Related to increased salaries, insurance, travel, audit, legal
and other expenses associated with operating as a public com-
pany and the continued growth of Patriot Operating Company.... 150
Represents expense related to the annual amortization of un-
earned stock compensation computed on a straight-line basis
over the 3 to 5-year vesting periods.......................... 1,444
-------
$12,726
=======
</TABLE>
(J) Represent general and administrative expense related to the 10 CHC Hotels
and general and administrative expense related to the contracts acquired
in connection with the GAH Acquisition and the CHCI Merger.
(K) Represents elimination of approximately $1,700 of non-recurring legal fees
and CHCI Merger related costs.
(L) Represents the following adjustments to depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to increase depreciation related to F, F & E......... $ 142
Adjustment to reflect amortization of goodwill.................. 158
Adjustment to reflect amortization of trade names............... 63
Adjustment to reflect amortization of management contract
costs.......................................................... 391
-------
$ 754
=======
Adjustment to increase depreciation related to F, F & E......... $ 21
Adjustment to reflect amortization of goodwill.................. 300
Adjustment to reflect amortization of trade names............... 125
Adjustment to reflect amortization of management contract
costs.......................................................... 3,078
-------
$ 3,524
=======
</TABLE>
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 5 to 7 years for F, F & E. Amortization of
goodwill related to the Cal Jockey Merger is computed using the straight-
line method over a 40 year estimated useful life. Because the paired share
structure is "grandfathered" under the Code, management believes the life of
the paired share structure is perpetual. Under generally accepted accounting
principles, however, the maximum amortization period is 40 years for
intangible assets. Amortization of goodwill related to the acquisition of
the management operations of Grand Heritage Hotels, Inc., GAH and CHCI is
computed using the straight-line method over a 20 year estimated useful
life. Amortization of trade names is computed using the straight-line method
over a 20 year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the estimated
remaining term of the contracts.
203
<PAGE>
(M) Represents lease payments from Patriot Operating Company to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(N) Represents the elimination of interest expense related to debt which
Patriot Operating Company will not assume in connection with the CHCI
Merger.
(O) Represents an adjustment to the estimated federal and state tax liability
as a result of the pro forma adjustment to Patriot Operating Company for
the six months ended June 30, 1997.
(P) Represents the adjustment to minority interest to reflect the estimated
minority interest percentage subsequent to the assumed transactions. The
estimated minority interest percentage subsequent to the Recent
Transactions is approximately 11.8%. The estimated minority interest
percentage subsequent to the acquisition of the CHC Hotels, the GAH
Acquisition and the CHCI Merger is approximately 16.8%.
(Q) Pro forma earnings per share is computed based on 74,045 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares. In addition, the historical net income
per common share and the weighted average number of common shares and
common share equivalents have been adjusted for the conversion of each
share of Old Patriot REIT Common Stock into 0.51895 Paired Shares issued
in the Cal Jockey Merger, and the July 1997 1.927-for-1 stock split
effected in the form of a stock dividend, as applicable. Historical basis
earnings per share is computed based on 11,106 weighted average common
shares and common share equivalents outstanding.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be a net loss of $0.05 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
204
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels to Lessees, except those hotels
leased to Patriot Operating Company and except the Crowne Plaza Ravinia Hotel
and the Wyndham WindWatch Hotel, which are separately owned through the Non-
Controlled Subsidiaries and are managed directly by Operators. The Combined
Lessees subsequent to (i) the Cal Jockey Merger and the related transactions;
(ii) the Grand Heritage Acquisition (which included the acquisition of Grand
Heritage Leasing, L.L.C. which leased three hotels from Patriot REIT); (iii)
the acquisition of PAH RSI Lessee (which included the acquisition of eight
Patriot REIT hotel leases); and (iv) the GAH Acquisition and the CHCI Merger
(which included the acquisition of 25 Patriot REIT hotel leases from CHC Lease
Partners) consist of NorthCoast Lessee which leases 11 hotels (excluding the
Park Shore Hotel), Doubletree Lessee which leases four hotels, Crow Hotel
Lessee, Inc. which leases two hotels, and Metro Lease Partners which leases
one hotel. The Participating Leases provide for staggered terms of one to
twelve years and the payment of the greater of base or participating rent,
plus certain additional charges, as applicable.
The Combined Lessees' unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the six months ended June
30, 1997 are presented as if the 18 hotels that Patriot REIT leases to the
Combined Lessees pursuant to Participating Leases (excluding the Park Shore
Hotel) had been leased as of January 1, 1996. The eight hotels which were
leased to PAH RSI Lessee, the 25 hotels which were leased to CHC Lease
Partners, and the three hotels leased to Grand Heritage Leasing, L.L.C. are
assumed to have been leased to Patriot Operating Company and, therefore, have
been eliminated from the Pro Forma Condensed Combined Statements of Operations
for the Combined Lessees. The pro forma information is based in part upon the
Statements of Operations of NorthCoast Lessee filed with Old Patriot REIT's
Annual Report on Form 10-K for the year ended December 31, 1996 and the
Statements of Operations of NorthCoast Lessee filed with Patriot REIT's and
Patriot Operating Company's Joint Quarterly Report on Form 10-Q for the six
months ended June 30, 1997. In management's opinion, all adjustments necessary
to reflect the effects of these transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended June
30, 1997 is not necessarily indicative of the results of operations for the
full year.
205
<PAGE>
COMBINED LESSEES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenue:
Room............................................... $ 88,410 $46,264
Food and beverage.................................. 36,878 19,146
Telephone and other................................ 7,837 3,919
--------- -------
Total revenue................................... 133,125 69,329
--------- -------
Expenses:
Departmental costs and expenses.................... 54,564 28,001
General and administrative......................... 11,597 6,161
Ground lease expense............................... 2,496 903
Repair and maintenance............................. 6,670 3,355
Utilities.......................................... 5,435 2,524
Marketing.......................................... 9,169 4,847
Insurance.......................................... 998 72
Participating lease payments(A).................... 41,749 21,654
--------- -------
Total expenses.................................. 132,678 67,517
--------- -------
Income (loss) before lessee income (expense)........ 447 1,812
--------- -------
Dividend and interest income(B)..................... 142 1,039
Management fees(C).................................. (3,479) (2,010)
Lessee general and administrative(D)................ (577) (382)
--------- -------
(3,914) (1,353)
--------- -------
Net income (loss)................................... $ (3,467) $ 459
========= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
206
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
INTRODUCTION TO
PRO FORMA FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
On April 14, 1997, Old Patriot REIT and Wyndham entered into the Merger
Agreement and Old Patriot REIT and CF Securities, the principal stockholder of
Wyndham, entered into the Stock Purchase Agreement. On July 24, 1997,
subsequent to the consummation of the Cal Jockey Merger, Patriot REIT ratified
the Merger Agreement pursuant to a Ratification Agreement between Patriot REIT
and Wyndham. On July 24, 1997, Patriot Operating Company also ratified the
Merger Agreement pursuant to a Ratification Agreement among Patriot Operating
Company, Wyndham, Patriot REIT and CF Securities. Pursuant to the Merger
Agreement, Wyndham will merge with and into Patriot REIT, with Patriot REIT
being the surviving legal entity. Following the Merger, Patriot REIT will
continue to be referred to as "Patriot American Hospitality, Inc." and Patriot
Operating Company will change its name to "Wyndham International, Inc."
Pursuant to the Merger Agreement, subject to certain adjustments and the
right of Wyndham stockholders to elect to receive cash as described below,
Wyndham stockholders will be entitled to receive, for each share of Wyndham
Common Stock held by them at the effective time of the Merger, 1.372 shares of
Patriot REIT Common Stock and 1.372 shares of Wyndham International Common
Stock (subject to certain REIT qualification requirements and the Excess Share
Provisions), which shares will be paired and transferable only as a single
unit. In the event, however, that the Patriot Average Closing Price is less
than $21.86 but greater than or equal to $20.87, Wyndham stockholders will be
entitled to receive, for each share of Wyndham Common Stock held by them at
the effective time of the Merger, the number of Paired Shares equal to $30.00
divided by the Patriot Average Closing Price. In the event that the Patriot
Average Closing Price is less than $20.87, Wyndham stockholders will be
entitled to receive, for each share of Wyndham Common Stock held by them at
the effective time of the Merger, 1.438 Paired Shares, provided, however, that
in the event that the Patriot Average Closing Price is less than $20.87,
Wyndham has the right, waivable by it, to terminate the Merger Agreement. Each
Paired Share of Patriot REIT Common Stock and Patriot Operating Company Common
Stock outstanding immediately prior to the Merger will remain outstanding
after the Merger and will represent the same number of Paired Shares of
Patriot REIT Common Stock and Wyndham International Common Stock.
In lieu of receiving Paired Shares, Wyndham stockholders have the right to
elect to receive Cash Consideration in an amount per share equal to the
Exchange Ratio (as it may be adjusted) multiplied by the average closing price
of a Paired Share over the five trading days immediately preceding the closing
of the Merger, and CF Securities has an equivalent right under the Stock
Purchase Agreement; provided, however, that the maximum aggregate amount of
cash to be paid to Wyndham stockholders and CF Securities pursuant to such
Cash Election rights will be a total of $100,000. In the event that holders of
Wyndham Common Stock and CF Securities elect to receive more than $100,000 in
cash, such cash will be allocated on a pro rata basis among such stockholders
and CF Securities based upon the respective number of shares of Wyndham Common
Stock as to which they have elected to receive cash, and the Wyndham
stockholders (other than CF Securities) will receive Paired Shares at the
Exchange Ratio for their shares of Wyndham Common Stock which are not
converted into Cash Consideration. Under such circumstances, CF Securities may
receive a combination of Paired Shares and Series A Preferred Stock pursuant
to the terms of the Stock Purchase Agreement for its shares of Wyndham Common
Stock which are not converted into Cash Consideration, subject to certain REIT
qualification limitations that could, under certain limited circumstances,
result in the payment of cash in lieu of shares of Series A Preferred Stock.
As of June 30, 1997, Wyndham owned 10 hotels and leased 13 hotels with an
aggregate of 4,877 guest rooms, had management and franchise agreements for 67
managed and franchised properties throughout North America, and had management
and franchise agreements for 16 properties which were closed for renovation or
207
<PAGE>
construction or were in the process of being converted to the Wyndham brand,
including WyndhamSM, Wyndham Garden(R) and Wyndham Hotels and ResortsSM. The
67 managed properties include eight properties which are owned by Homegate
Hospitality, Inc.
On July 31, 1997, Wyndham acquired through merger Kansas City-based
ClubHouse, a privately-held hospitality company with a portfolio of 17 hotels
operating in the mid-scale segment of the lodging industry. Of the hotels
comprising ClubHouse's portfolio, Wyndham acquired through the merger or in
related acquisition transactions ownership of 13 ClubHouse hotels and partial
ownership of three ClubHouse hotels. Wyndham also acquired through the merger
ownership of the "ClubHouse" brandname, as well as license rights with respect
to one franchised ClubHouse hotel.
Following the Merger, Patriot REIT, through certain of its subsidiaries,
will own the 10 Wyndham hotels and 13 ClubHouse hotels and will lease such
hotels to Wyndham International. The 13 hotel leases to be assumed by Patriot
REIT will be sub-leased to Wyndham International. Wyndham's remaining 53
management and franchise contracts, the Wyndham and the ClubHouse proprietary
brand names and the Wyndham hotel management company will be transferred to
corporate subsidiaries of Patriot REIT (collectively, the "New Non-Controlled
Subsidiaries"). Patriot REIT will own a 99% non-voting interest and Wyndham
International will own the 1% controlling voting interest in each of the New
Non-Controlled Subsidiaries. Therefore, the operating results of the New Non-
Controlled Subsidiaries will be combined with those of Wyndham International
for financial reporting purposes. Patriot REIT will account for its investment
in the New Non-Controlled Subsidiaries using the equity method of accounting.
Patriot REIT will also assume Wyndham's existing indebtedness, substantially
all of which is expected to be refinanced with funds drawn on the Term Loan
and/or the Revolving Credit Facility.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotels and related improvements and other
assets and liabilities owned by Wyndham are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of Wyndham has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of Wyndham will materially change;
however, the allocation of purchase costs are subject to final determination
based upon estimates and other evaluations of fair market value as of the
close of the transaction. Therefore, the allocation reflected in the following
unaudited Pro Forma Financial Statements may differ from the amounts
ultimately determined.
In connection with the execution of the Merger Agreement, the Patriot REIT
Partnership also entered into agreements with the Crow Family Entities
providing for the acquisition by Patriot REIT of 11 full-service Wyndham-brand
hotels with 3,072 rooms for approximately $331,664 in cash, plus approximately
$14,000 in additional consideration if two hotels meet certain operational
targets. However, Patriot REIT currently expects that the purchase of the
Milwaukee Hotel will be delayed up to 24 months pending the receipt of certain
third party consents. Accordingly, the Pro Forma Financial Statements include
only the results of operations of the 10 hotels with 2,851 rooms expected to
be acquired subject to the Crow Assets Acquisition which represent
approximately $308,633 of the total purchase price. Subsequent to the Crow
Assets Acquisition, Patriot REIT will lease the 10 hotels to Wyndham
International. In addition, in connection with the Crow Assets Acquisition,
the leases with the Wyndham Lessee related to the Wyndham Garden Hotel-Midtown
and the Wyndham Greenspoint Hotel will be terminated and Patriot REIT will
lease these hotel properties to Wyndham International. The Merger and the
Related Transactions and the Crow Assets Acquisition are collectively referred
to herein as the "Wyndham Transactions."
The Merger and the Crow Assets Acquisition are to be consummated
concurrently and are subject to various conditions, including approval of the
Merger by the stockholders of Patriot REIT, Patriot Operating Company and
Wyndham.
208
<PAGE>
The following unaudited Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the six months ended June 30, 1997 assume the Merger and
the Crow Assets Acquisition had occurred on January 1, 1996. The pro forma
information is also presented as if the following Recent Transactions had
occurred on January 1, 1996:
(i) the Cal Jockey Merger and the related transactions have been
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale has been consummated, the PaineWebber
affiliate has leased that portion of the land upon which the Racecourse is
situated to Patriot REIT, and Patriot REIT has subleased this land and the
related improvements to Patriot Operating Company;
(iii) Patriot REIT has leased certain land to Borders, Inc.;
(iv) Patriot Operating Company has completed the Grand Heritage
Acquisition and the acquisition of PAH RSI Lessee;
(v) Patriot REIT has acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT has replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) Patriot REIT has acquired the Participating Note; and
(ix) the Offering of 10,580,000 Paired Shares has been completed.
The unaudited Pro Forma Condensed Combined Statements of Operations also
assume the following additional transactions have occurred at the beginning of
the periods presented:
(i) Patriot REIT has acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(ii) Patriot Operating Company has completed the GAH Acquisition; and
(iii) the CHCI Merger has been consummated on terms set forth in the CHCI
Merger Agreement.
In addition, the pro forma results of operations for the year ended December
31, 1996 assume the 24 hotels acquired during 1996 and the private placement
of equity securities and the public offering of common stock completed by Old
Patriot REIT during 1996 had occurred as of January 1, 1996.
In management's opinion, all material adjustments necessary to reflect the
effects of these transactions have been made.
The Pro Forma Condensed Combined Statements of Operations are derived from
(i) the Patriot REIT and Patriot Operating Company Pro Forma Condensed
Combined Statements of Operations for the year ended December 31, 1996 and the
six months ended June 30, 1997 included elsewhere in this Joint Proxy
Statement/Prospectus; (ii) the Consolidated Statements of Income of Wyndham
filed with Wyndham's Annual Report on Form 10-K for the year ended December
31, 1996 and the Quarterly Report on Form 10-Q for the six months ended June
30, 1997; and (iii) the Combined Crow Family Hotel Partnerships financial
statements for the year ended December 31, 1996 and the six months ended June
30, 1997 included elsewhere in this Joint Proxy Statement/Prospectus. During
1996, one of the hotels to be acquired in the Crow Assets Acquisition (The La
Guardia Airport Hotel) was closed for renovation. As a result the hotel
reported no historical results of operations for 1996 and therefore is not
included in the following unaudited Pro Forma Condensed Combined Statements of
Operations for the year ended December 31, 1996 and the six months ended June
30, 1997. The following pro forma financial information is also based in part
upon:
(i) the Separate and Combined Statements of Income of Cal Jockey and Bay
Meadows filed with the Cal Jockey and Bay Meadows Joint Annual Report on
Form 10-K for the year ended December 31, 1996 and the Joint Quarterly
Report on Form 10-Q for the six months ended June 30, 1997;
(ii) the Consolidated Statements of Operations of Old Patriot REIT filed
with the Old Patriot REIT Annual Report on Form 10-K for the year ended
December 31, 1996 and the Joint Quarterly Report on Form 10-Q for the six
months ended June 30, 1997;
209
<PAGE>
(iii) the historical financial statements of certain hotels acquired by
Old Patriot REIT filed in Old Patriot REIT's Current Reports on Form 8-K
dated April 2, 1996, as amended, December 5, 1996 and January 16, 1997, as
amended;
(iv) the historical financial statements of certain hotels and businesses
acquired by the Patriot Companies filed in the Patriot Companies' Joint
Current Reports on Form 8-K dated September 17, 1997 and September 30,
1997, as amended;
(v) the Pro Forma Condensed Combined Statements of Operations of the
Combined Lessees which are located elsewhere in this Joint Proxy
Statement/Prospectus; and
(vi) the historical financial statements of ClubHouse and certain
additional entities filed in Wyndham's Current Report on Form 8-K/A dated
September 18, 1997, as amended.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the
Wyndham Transactions would have been assuming such transactions had been
completed as of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods. Further, the unaudited
Pro Forma Condensed Combined Statement of Operations for the interim period
ended June 30, 1997 is not necessarily indicative of the results of operations
for the full year.
210
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................ $279,948 $ -- $(247,218)(A) $ 32,730
Hotel revenue........... -- 876,663 -- 876,663
Racecourse facility
revenue, hotel and land
lease revenue.......... 17,714 51,946 (17,380)(B) 52,280
Management fee, service
fee and reimbursement
income................. -- 49,225 -- 49,225
Interest and other
income................. 2,797 12,262 (5,916)(C) 9,143
-------- --------- --------- ----------
Total revenue........... 300,459 990,096 (270,514) 1,020,041
-------- --------- --------- ----------
Expenses:
Departmental costs--
hotel operations....... -- 368,568 -- 368,568
Racecourse facility
operations............. -- 46,351 (5,611)(B) 40,740
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses............... -- 43,809 -- 43,809
General and
administrative......... 7,097 103,877 (34)(C) 110,940
Ground lease and hotel
lease expense.......... 16,824 12,502 (11,769)(B) 17,557
Repair and maintenance.. -- 41,991 -- 41,991
Utilities............... -- 36,834 -- 36,834
Interest expense........ 117,679 1,393 (5,882)(C) 113,190
Real estate and personal
property taxes and
casualty insurance..... 34,542 847 -- 35,389
Marketing............... -- 70,577 -- 70,577
Management fees......... -- 9,469 -- 9,469
Depreciation and
amortization........... 93,775 29,055 -- 122,830
Participating lease
payments............... -- 247,218 (247,218)(A) --
-------- --------- --------- ----------
Total expenses.......... 269,917 1,012,491 (270,514) 1,011,894
-------- --------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests............... 30,542 (22,395) -- 8,147
Equity in earnings of
unconsolidated
subsidiaries........... 3,243 -- 4,679 (D) 7,922
-------- --------- --------- ----------
Income (loss) before
income tax provision and
minority interests...... 33,785 (22,395) 4,679 16,069
Income tax (provision)
benefit................ (345) 7,532 -- 7,187
-------- --------- --------- ----------
Income (loss) before
minority interests...... 33,440 (14,863) 4,679 23,256
Minority interests in
the Patriot
Partnerships........... (3,887) 1,314 -- (2,573)
Minority interest in
consolidated
subsidiaries .......... (1,832) 4,679 (4,679)(D) (1,832)
-------- --------- --------- ----------
Net income (loss)
applicable to common
shareholders............ $ 27,721 $ (8,870) $ -- $ 18,851 (E)
======== ========= ========= ==========
Net income (loss) per
common Paired Share(F).. $ 0.28 $ (0.09) $ 0.19 (E)
======== ========= ==========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets are assumed to be acquired by Patriot Operating Company, the
elimination of $4,712 of interest income and expense related to the
Subscription Notes issued to Patriot Operating Company in connection with
the subscription for shares of Patriot Operating Company Common Stock and
Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(D) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
shareholders and net income per Paired Share (i) assuming approximately
2,356 shares of Wyndham Common Stock are purchased for cash ("Cash
Option"), based on total funds available of $100,000, an estimated market
price per Paired Share of $30.93 (based upon the average closing price of
the Patriot Companies' Paired Shares on the NYSE for the 20 trading days
prior to October 21, 1997) and an Exchange Ratio equal to 1.372 Paired
Shares for each share of Wyndham Common Stock; (ii) assuming no Wyndham
stockholders elect to receive cash ("All Stock"); and (iii) assuming an
average interest rate ranging from 7.183% to 7.233% per annum on the
incremental borrowings related to the Revolving Credit Facility and the
Term Loan (representing LIBOR plus 1.7% and 1.75%, respectively) on
outstanding debt obligations of approximately $1,451,830 for Cash Option
and $1,351,830 for All Stock.
211
<PAGE>
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings............................................. $ -- $(7,183)
======= =======
Income before minority interests in the Patriot
Partnerships and income tax provision (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $14,237 $21,420
Income tax provision.................................... 7,187 7,187
Minority interests in the Patriot Partnerships.......... (2,573) (3,372)
------- -------
Net income applicable to common shareholders............ $18,851 $25,235
======= =======
Net income per common Paired Share...................... $ 0.19 $ 0.25
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 12.3% 12.0%
======= =======
Patriot Operating Company Partnership................. 12.9% 12.6%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 99,579 102,811
======= =======
</TABLE>
The Exchange Ratio is subject to adjustment in the event that the Patriot
Average Closing Price of the Paired Shares is less than $21.86 per Paired
Share. If the Patriot Average Closing Price is less than $21.86 per Paired
Share, but greater than or equal to $20.87 per Paired Share, the Exchange
Ratio will be adjusted so that each outstanding share of Wyndham Common
Stock will be converted into the right to receive a number of Paired Shares
equal to $30.00 divided by the Patriot Average Closing Price. However, if
the Patriot Average Closing Price is less than $20.87 per Paired Share,
there will be no further adjustments to the Exchange Ratio; but in such
circumstances Wyndham has the right, waivable by it, to terminate the Merger
Agreement. As a result, the maximum Exchange Ratio would be 1.438 Paired
Shares for each share of Wyndham Common Stock (the "Maximum Exchange
Ratio"). On a pro forma basis, the effect of the Maximum Exchange Ratio,
assuming Cash Option, would be de minimis. On a pro forma basis, the effect
of the Maximum Exchange Ratio assuming All Stock would result in a decrease
in the estimated minority interest percentages in the Patriot Partnerships
subsequent to the Wyndham Transactions by 0.2%, resulting in net income of
$25,293 and net income per common Paired Share of $0.25.
Additionally, the following table presents the net impact to pro forma net
income applicable to common shareholders and net income per common Paired
Share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................ $ -- $(7,433)
======= =======
Income before income tax provision and minority
interests in the Patriot Partnerships (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $10,950 $18,383
Income tax provision.................................... 7,187 7,187
Minority interests in the Patriot Partnerships.......... (2,169) (3,007)
------- -------
Net income applicable to common shareholders............ $15,968 $22,563
======= =======
Net income per common Paired Share...................... $ 0.16 $ 0.22
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 12.3% 12.0%
======= =======
Patriot Operating Company Partnership................. 12.9% 12.6%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 99,579 102,811
======= =======
</TABLE>
The Patriot Companies have entered into a commitment letter with PaineWebber
Real Estate and Chase which provides for a Term Loan of $500,000. The Term
Loan will be used in part to finance the Wyndham Transactions. Deferred loan
costs of approximately $6,175 related to the financing associated with the
Wyndham Transactions have been reflected in the pro forma financial
information.
(F) Pro forma earnings per share is computed based on 99,579 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.20 per Paired Share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
212
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
PATRIOT OPERATING
REIT COMPANY
AND WYNDHAM AND WYNDHAM PRO FORMA
PRO FORMA PRO FORMA ELIMINATIONS TOTAL
----------- ----------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $158,130 $ -- $(141,466)(A) $ 16,664
Hotel revenue............ -- 489,480 -- 489,480
Racecourse facility
revenue, hotel and land
lease revenue........... 13,614 22,538 (13,447)(B) 22,705
Management fee, service
fee and reimbursement
income.................. -- 27,867 -- 27,867
Interest and other
income.................. 2,806 6,735 (2,965)(C) 6,576
-------- -------- --------- --------
Total revenue............ 174,550 546,620 (157,878) 563,292
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 190,868 -- 190,868
Racecourse facility
operations.............. -- 20,282 (2,635)(B) 17,647
Direct operating costs of
management company,
service department,
development and
reimbursement expenses.. -- 24,537 -- 24,537
General and
administrative.......... 5,227 55,435 (24)(C) 60,638
Ground lease and hotel
lease expense........... 12,434 11,258 (10,812)(B) 12,880
Repair and maintenance... -- 23,354 -- 23,354
Utilities................ -- 27,398 -- 27,398
Interest expense......... 59,363 623 (2,941)(C) 57,045
Real estate and personal
property taxes and
casualty insurance...... 18,461 220 -- 18,681
Marketing................ -- 39,174 -- 39,174
Management fees.......... -- 6,000 -- 6,000
Depreciation and
amortization............ 47,714 14,940 -- 62,654
Participating lease
payments................ -- 141,466 (141,466)(A) --
-------- -------- --------- --------
Total expenses........... 143,199 555,555 (157,878) 540,876
-------- -------- --------- --------
Income before equity in
earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 31,351 (8,935) -- 22,416
Equity in earnings of
unconsolidated
subsidiaries............ 3,520 -- (234)(D) 3,286
-------- -------- --------- --------
Income before income tax
provision and minority
interests................ 34,871 (8,935) (234) 25,702
Income tax (provision)
benefit................. (172) 4,891 -- 4,719
-------- -------- --------- --------
Income before minority
interests................ 34,699 (4,044) (234) 30,421
Minority interests in the
Patriot Partnerships.... (4,147) 552 -- (3,595)
Minority interest in
consolidated
subsidiaries............ (987) (234) 234 (D) (987)
-------- -------- --------- --------
Net income applicable to
common shareholders...... $ 29,565 $ (3,726) $ -- $ 25,839 (E)
======== ======== ========= ========
Net income per common
Paired Share(F).......... $ 0.30 $ (0.04) $ 0.26 (E)
======== ======== ========
</TABLE>
- --------
(A) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(B) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(C) Represents primarily the elimination of $585 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Patriot Operating Company, the elimination
of $2,356 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(D) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(E) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. Set forth below is a summary comparison
of the net impact to pro forma net income applicable to common
shareholders and net income per Paired Share (i) assuming approximately
2,356 shares of Wyndham Common Stock are purchased pursuant to the Cash
Option (based on total funds available of $100,000, an estimated market
price per Paired Share of $30.93 (based upon the average closing price of
the Paired Shares on the NYSE for the 20 trading days prior to October 21,
1997) and an Exchange Ratio equal to
213
<PAGE>
1.372 Paired Shares for each share of Wyndham Common Stock); (ii) assuming
Wyndham stockholders elect to receive All Stock; and (iii) assuming an
average interest rate ranging from 7.264% to 7.314% per annum on the
incremental borrowings related to the Revolving Credit Facility and the Term
Loan (representing LIBOR plus 1.7% and 1.75%, respectively) on outstanding
debt obligations of approximately $1,451,830 for Cash Option and $1,351,830
for All Stock.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings to fund the purchase of Wyndham Common
Stock.................................................. $ -- $(3,632)
======= =======
Income before minority interests in the Patriot
Partnerships and income tax benefit (after minority
interest in consolidated subsidiaries and other
partnerships).......................................... $24,715 $28,347
Income tax benefit...................................... 4,719 4,719
Minority interests in the Patriot Partnerships.......... (3,595) (3,942)
------- -------
Net income applicable to common shareholders............ $25,839 $29,124
======= =======
Net income per common Paired Share...................... $ 0.26 $ 0.28
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 12.3% 12.0%
======= =======
Patriot Operating Company Partnership................. 12.9% 12.6%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 100,108 103,340
======= =======
</TABLE>
The Exchange Ratio is subject to adjustment in the event that the Patriot
Average Closing Price of the Paired Shares is less than $21.86 per Paired
Share. If the Patriot Average Closing Price is less than $21.86 per Paired
Share but greater or equal to $20.87 per Paired Share, the Wyndham Exchange
Ratio will be adjusted so that each outstanding share of Wyndham Common
Stock will be converted into the right to receive a number of Paired Shares
equal to $30.00 divided by the Patriot Average Closing Price. However, if
the Patriot Average Closing Price is less than $20.87 per paired share,
there will be no further adjustments to the Exchange Ratio; but in such
circumstances Wyndham has the right, waivable by it, to terminate the Merger
Agreement. As a result, the Maximum Exchange Ratio would be 1.438 Paired
Shares for each share of Wyndham Common Stock. On a pro forma basis, the
effect of the Maximum Exchange Ratio, assuming Cash Option, would be de
minimis. On a pro forma basis, the effect of the Maximum Exchange Ratio
assuming All Stock would result in a decrease in the estimated minority
interest percentages in the Patriot Partnerships subsequent to the Wyndham
Transactions by 0.2%, resulting in net income of $29,189 and net income per
common Paired Share of $0.27.
Additionally, the following table presents the net impact to pro forma net
income applicable to common stockholders and net income per common Paired
Share assuming the interest rate increases by 0.25%.
<TABLE>
<CAPTION>
CASH ALL
OPTION STOCK
------- -------
<S> <C> <C>
Decrease in interest expense as a result of reduced
borrowings ............................................ $ -- $(3,757)
======= =======
Income before income tax benefit and minority interests
in the Patriot Partnerships (after minority interest in
consolidated subsidiaries and other partnerships)...... $23,070 $26,827
Income tax benefit...................................... 4,719 4,719
Minority interests in the Patriot Partnerships.......... (3,392) (3,975)
------- -------
Net income applicable to common shareholders............ $24,397 $27,786
======= =======
Net income per common Paired Share...................... $ 0.24 $ 0.27
======= =======
Estimated minority interest percentage in the Patriot
Partnerships subsequent to the Wyndham Transactions:
Patriot REIT Partnership.............................. 12.3% 12.0%
======= =======
Patriot Operating Company Partnership................. 12.9% 12.6%
======= =======
Weighted average number of common Paired Shares and
common Paired Share equivalents outstanding............ 100,108 103,340
======= =======
</TABLE>
The Patriot Companies have entered into a commitment letter with PaineWebber
Real Estate and Chase which provides a Term Loan of $500,000. The Term Loan
will be used in part to finance the Wyndham Transactions. Deferred loan
costs of approximately $6,175 related to the financing associated with the
Wyndham Transactions have been reflected in the pro forma financial
information.
(F) Pro forma earnings per share is computed based on 100,108 weighted average
common Paired Shares and common Paired Share equivalents outstanding for the
period. The number of shares used for the calculation includes adjustments to
reflect the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be $0.27 per Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
214
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the Wyndham Transactions had occurred as of June 30, 1997. The
Pro Forma Condensed Combined Balance Sheet is also derived from the Patriot
REIT and Patriot Operating Company Pro Forma Condensed Combined Balance Sheet
as of June 30, 1997 included elsewhere in this Joint Proxy
Statement/Prospectus, which is presented as if the following transactions have
occurred as of June 30, 1997:
(i) the Cal Jockey Merger and the transactions related thereto were
consummated on terms set forth in the Cal Jockey Merger Agreement;
(ii) the PaineWebber Land Sale was consummated, the PaineWebber affiliate
leased that portion of the land upon which the Racecourse is situated to
Patriot REIT and Patriot REIT subleased this land and the related
improvements to Patriot Operating Company;
(iii) Patriot REIT leased certain land to Borders, Inc.;
(iv) Patriot Operating Company completed the Grand Heritage Acquisition
and acquired PAH RSI Lessee;
(v) Patriot REIT acquired the Recent Acquisitions (excluding the Park
Shore Hotel);
(vi) the mortgage notes to affiliates of CHC Lease Partners have been
funded;
(vii) Patriot REIT replaced the Old Line of Credit with the Revolving
Credit Facility and the Term Loan;
(viii) Patriot REIT acquired the Participating Note;
(ix) the Offering of 10,580,000 Paired Shares was completed;
(x) Patriot REIT acquired the CHC Hotels and leased such hotels to
Patriot Operating Company;
(xi) Patriot Operating Company completed the GAH Acquisition; and
(xii) the CHCI Merger was consummated on terms set forth in the CHCI
Merger Agreement.
Such pro forma information is based in part upon Wyndham's Consolidated
Balance Sheet as of June 30, 1997, Old Patriot REIT's Consolidated Balance
Sheet as of June 30, 1997, and Patriot REIT's and Patriot Operating Company's
Combined Balance Sheet as of June 30, 1997 and should be read in conjunction
with the financial statements filed with Wyndham's, and the Patriot Companies'
respective Quarterly Reports on Form 10-Q for the six months ended June 30,
1997. In management's opinion, all material adjustments necessary to reflect
the effect of these transactions have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of the Wyndham Transactions at their
estimated fair market values and the elimination of Wyndham's historical
shareholders' equity. The fair market values of the assets and liabilities of
Wyndham have been determined based upon preliminary estimates and are subject
to change as additional information is obtained. Management does not
anticipate that the preliminary allocation of purchase costs based upon the
estimated fair market values of the assets and liabilities of Wyndham will
materially change; however, the allocations of purchase costs are subject to
final determination based upon estimates and other evaluations of fair market
value as of the close of the transaction. Therefore, the allocations reflected
in the following unaudited Pro Forma Condensed Combined Balance Sheet may
differ from the amounts ultimately determined. The following unaudited Pro
Forma Condensed Combined Balance Sheet is not necessarily indicative of what
the actual financial position would have been assuming such transactions had
been completed as of June 30, 1997, nor does it purport to represent the
future financial position of Patriot REIT and Wyndham International as
adjusted for the Wyndham Transactions.
215
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
PATRIOT
OPERATING CROW
COMPANY ASSETS
PRO FORMA ACQUISITION WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
---------- ------------ ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Net investment in hotel
and resort properties
and land held for
sale................... $1,591,435 $320,357 $274,640 $181,245 (D) $2,367,677
Net investment in
Racecourse facility and
related improvements... 21,565 -- -- -- 21,565
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,424 -- -- -- 74,424
Notes and other
receivables from
affiliates............. -- -- 21,185 -- 21,185
Notes receivable........ 24,613 -- 6,240 -- 30,853
Investment in
unconsolidated
subsidiaries........... 12,448 -- 3,973 -- 16,421
Cash and cash
equivalents............ 19,238 -- 24,415 -- 43,653
Restricted cash......... 41,544 -- 645 -- 42,189
Accounts receivable,
net.................... 13,238 -- 13,477 -- 26,715
Goodwill................ 120,013 -- 20,944 298,486 (E) 439,443
Deferred expenses, net.. 13,850 -- 7,266 209 (F) 21,325
Management contract
costs.................. 43,813 -- 12,664 53,518 (G) 109,995
Trade name and franchise
costs.................. 16,500 -- -- 85,550 (H) 102,050
Prepaid expenses and
other assets........... 19,517 -- 36,441 -- 55,958
Deferred income taxes... 227 -- 16,051 (15,551)(I) 727
---------- -------- -------- -------- ----------
Total assets........... $2,012,425 $320,357 $437,941 $603,457 $3,374,180
========== ======== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $ 766,350 $320,357 $232,047 $133,076 (J) $1,451,830
Accounts payable and
accrued expenses....... 35,512 -- 37,564 -- 73,076
Deferred income tax
liability.............. -- -- 20,944 50,609 (I) 71,553
Deposits................ -- -- 1,337 -- 1,337
Deferred gain........... -- -- 11,696 (11,696)(I) --
Due to unconsolidated
subsidiaries........... 6,314 -- -- -- 6,314
Minority interests in
the Patriot
Partnerships........... 271,495 -- -- -- 271,495
Minority interest in
consolidated
subsidiaries........... 27,990 -- -- -- 27,990
Shareholders' equity:
Preferred stock........ 44 -- -- -- 44
Common stock........... 1,376 -- 217 312 (K) 1,905
Paid-in capital........ 1,049,234 -- 133,496 465,889 (L) 1,648,619
Unearned stock compen-
sation, net........... (16,397) -- -- (16,397)
Notes receivable from
stockholders.......... -- -- (16,887)(M) -- (16,887)
Receivable from affili-
ates.................. -- -- (1,331)(N) -- (1,331)
Retained earnings...... (129,493) -- 18,858 (34,733)(L) (145,368)
---------- -------- -------- -------- ----------
Total shareholders' eq-
uity.................. 904,764 -- 134,353 431,468 1,470,585
---------- -------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $2,012,425 $320,357 $437,941 $603,457 $3,374,180
========== ======== ======== ======== ==========
</TABLE>
See notes on following page.
216
<PAGE>
- --------
(A) Represents the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of June 30, 1997, which reflects the Cal
Jockey Merger and the transactions related thereto.
(B) Represents adjustments to Patriot REIT's and Wyndham International's pro
forma financial position assuming consummation of the Crow Assets
Acquisition had occurred at June 30, 1997.
(C) Represents Wyndham's pro forma financial position as of June 30, 1997,
assuming the ClubHouse acquisition had occurred at June 30, 1997.
(D) Represents adjustment for the purchase method of accounting whereby the
investments in hotel properties owned by Wyndham are adjusted to record
the assets at their estimated fair market values.
(E) Represents the purchase consideration in excess of fair market value of
the net assets of Wyndham.
(F) Represents the additional loan fees to be incurred in conjunction with the
financing for the Wyndham Transactions, net of Wyndham's historical
deferred loan fees.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by Wyndham (including the management contracts
acquired in the ClubHouse acquisition) are adjusted to their estimated
fair market values. Wyndham holds management contracts with certain of its
affiliates and with unrelated third parties for 45 hotels. The contracts
have an average remaining life of approximately 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents the estimated fair market value of the Wyndham and ClubHouse
tradenames and other franchise related assets.
(I) Pursuant to the Merger, deferred income taxes, the deferred income tax
liability and the deferred gain which resulted from the sale and lease-
back of the hotel properties leased by GHALP, Inc., an affiliate of
Wyndham, have been adjusted to reflect the effects of the Merger.
(J) Represents financing of $6,175 of additional loan fees related to the
financing of the Wyndham Transactions, estimated mortgage prepayment
penalties of $15,875, acquisition-related costs of $11,026 incurred in
connection with the Wyndham Transactions, and $100,000 of cash paid for
shares of Wyndham Common Stock.
(K) Represents an adjustment to record the exchange of Wyndham Common Stock
for Paired Shares. Pursuant to the Merger Agreement, Wyndham stockholders
may elect to receive for each share of Wyndham Common Stock held by them
either (i) cash for shares, up to a maximum of $100,000 of total funds
available or (ii) 1.372 shares of Patriot REIT Common Stock and 1.372
shares of Wyndham International Common Stock. Subsequent to Wyndham's
acquisition of ClubHouse, 21,618 shares of Wyndham Common Stock were
outstanding. The pro forma balances assume approximately 2,356 shares of
Wyndham Common Stock are purchased for cash pursuant to the Cash Option
(based on total funds available of $100,000; an estimated market price per
Paired Share of approximately $30.93, based on the average closing price
of the Paired Shares on the NYSE for the 20 trading days prior to October
21, 1997; and the Exchange Ratio equal to 1.372 Paired Shares for each
share of Wyndham Common Stock). The remaining 19,262 shares of Wyndham
Common Stock were assumed to be exchanged for approximately 26,428 Paired
Shares, resulting in an adjustment to increase common stock.
(L) Represents adjustments to shareholders' equity to eliminate Wyndham's pro
forma equity accounts totaling $152,571 and record equity based on the
number of Paired Shares issued in the Merger. The pro forma balances
assume Wyndham stockholders elect to receive cash for their shares of
Wyndham Common Stock up to the maximum funds available of $100,000. As a
result, approximately 2,356 shares of Wyndham Common Stock were assumed to
be purchased for cash (based on total funds available of $100,000; an
estimated market price per Paired Share of approximately $30.93, based on
the average closing price of the Paired Shares on the NYSE for the 20
trading days prior to October 21, 1997; and an Exchange Ratio equal to
1.372 Paired Shares for each share of Wyndham Common Stock). The total
purchase consideration for the Merger is approximately $688,011 (based
upon 19,262 shares of Wyndham Common Stock assumed to be exchanged for
approximately 26,428 Paired Shares and an estimated market price per
Paired Share of $22.25 (which is based upon the closing price on April 11,
1997, the business day prior to the date of the execution of the Merger
Agreement, of Old Patriot REIT's Common Stock) and $100,000 of cash
consideration).
Set forth below is a summary comparison of the net impact to pro forma
borrowings and shareholders' equity (i) assuming approximately 2,356 shares
of Wyndham Common Stock are purchased pursuant to the Cash Option (the basis
used for pro forma balance sheet presentation purposes), and (ii) assuming
Wyndham stockholders elect to receive All Stock.
<TABLE>
<CAPTION>
CASH OPTION ALL STOCK
----------- ---------
<S> <C> <C>
Number of shares of Wyndham Common Stock purchased
for cash............................................ 2,356 --
======== ========
Cash paid for shares of Wyndham Common Stock (assumed
to be financed through the Revolving Credit Facility
or other similar financing sources)................. $100,000 $ --
Number of Paired Shares issued pursuant to the
Merger.............................................. 26,428 29,660
======== ========
Purchase consideration for shares.................... $588,011 $659,938
Adjustment to common stock for Paired Shares issued.. (529) (593)
Outstanding options to purchase common stock assumed
in the Merger....................................... 11,903 11,903
Book value of Wyndham paid-in capital................ (133,496) (133,496)
-------- --------
Adjustment to paid-in capital........................ 465,889 537,752
-------- --------
Mortgage prepayment penalties incurred from
refinancing of Wyndham debt......................... (15,875) (15,875)
Elimination of historical retained earnings.......... (18,858) (18,858)
-------- --------
Adjustment to retained earnings...................... (34,733) (34,733)
Adjustment to common stock........................... 312 376
-------- --------
Adjustment to shareholders' equity.................. $431,468 $503,395
======== ========
</TABLE>
217
<PAGE>
The Exchange Ratio is subject to adjustment in the event that the Patriot
Average Closing Price of the Paired Shares is less than $21.86 per Paired
Share. If the Patriot Average Closing Price is less than $21.86 per Paired
Share but greater than or equal to $20.87 per Paired Share, the Exchange
Ratio will be adjusted so that each outstanding share of Wyndham Common
Stock will be converted into the right to receive a number of Paired Shares
equal to $30.00 divided by the Patriot Average Closing Price. However, if
the Patriot Average Closing Price is less than $20.87 per Paired Share,
there will be no further adjustments to the Exchange Ratio; but in such
circumstances Wyndham has the right, waivable by it, to terminate the Merger
Agreement. As a result, the Maximum Exchange Ratio would be 1.438 Paired
Shares for each share of Wyndham Common Stock. On a pro forma basis, the
effect of the Maximum Exchange Ratio would decrease total consideration to
approximately $648,784.
In connection with the Merger, options to purchase approximately 1,017
shares of Wyndham Common Stock which were issued by Wyndham to certain
officers and employees of Wyndham will be converted to options to purchase
1,395 Paired Shares. Such options to purchase Paired Shares will vest
immediately upon consummation of the Merger and become exercisable in full.
The stated exercise prices will be adjusted to reflect the Exchange Ratio.
The excess of the estimated value of a Paired Share on the date the Merger
is consummated (based upon the closing price on April 11, 1997, the business
day prior to the date of execution of the Original Merger Agreement, of Old
Patriot REIT's Common Stock on the NYSE of $22.25 and the Exchange Ratio)
over the stated exercise price of the options (as adjusted for the Exchange
Ratio) is reflected as additional purchase consideration for the Merger.
(M) Represents shareholder notes purchased by Wyndham in conjunction with its
initial public offering. In connection with the Merger, Patriot REIT will
acquire these notes at their historical cost, which approximates their
estimated fair value.
(N) Represents deferred management fees owed by an affiliate of Wyndham that
are deferred until certain operating criteria, as defined per the
management and loan agreement, are met. Such deferred management fees will
be acquired by Patriot REIT at their stated historical cost, which
approximates their estimated fair value, as a result of the Merger.
218
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT CROW
REIT ASSETS
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $213,868 $34,235 $ 31,845 $ -- $279,948
Racecourse facility,
hotel and land lease
revenue............... 5,945 -- 9,404 2,365 (D) 17,714
Interest and other
income................ 2,297 -- 500 -- 2,797
-------- ------- --------- ------- --------
Total revenue.......... 222,110 34,235 41,749 2,365 300,459
-------- ------- --------- ------- --------
Expenses:
Ground lease and hotel
lease expense......... 5,693 1,325 9,806 -- 16,824
General and
administrative........ 6,797 100 (E) 200 (E) -- 7,097
Interest expense....... 64,877 23,172 (F) 18,342 (F) 11,288 (F) 117,679
Real estate and
personal property
taxes and casualty
insurance............. 22,488 3,783 8,271 -- 34,542
Depreciation and
amortization.......... 62,723 12,033 (G) 19,019 (G) -- 93,775
-------- ------- --------- ------- --------
Total expenses......... 162,578 40,413 55,638 11,288 269,917
-------- ------- --------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 59,532 (6,178) (13,889) (8,923) 30,542
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 7,559 -- 363 (4,679)(H) 3,243
-------- ------- --------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 67,091 (6,178) (13,526) (13,602) 33,785
Income tax provision... (170) -- -- (175)(I) (345)
-------- ------- --------- ------- --------
Income (loss) before mi-
nority interests....... 66,921 (6,178) (13,526) (13,777) 33,440
Minority interest in
the Patriot REIT Part-
nership............... (10,610) 760 1,664 4,299 (J) (3,887)
Minority interest in
consolidated subsidi-
aries................. (1,832) -- -- -- (1,832)
-------- ------- --------- ------- --------
Net income (loss)
applicable to common
shareholders .......... $ 54,479 $(5,418) $ (11,862) $(9,478) $ 27,721 (K)
======== ======= ========= ======= ========
Net income per common
share(L)............... $ 0.74 $ 0.28 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the
year ended December 31, 1996 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leased that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel); and the CHC Hotels; (v) the mortgage notes to affiliates of CHC
Lease Partners have been funded; (vi) Patriot REIT replaced the Old Line
of Credit with the Revolving Credit Facility and the Term Loan; (vii)
Patriot REIT acquired the Participating Note; (viii) the Offering of
10,580,000 Paired Shares was completed; and (ix) Patriot REIT acquired
eight leases from CHC Lease Partners and re-leased such hotels to Patriot
Operating Company. In addition, the pro forma results of operations assume
the 24 hotels acquired during 1996 and the private placement and public
offering of equity securities completed by Old Patriot REIT during 1996
had occurred as of January 1, 1996. See page 193.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. One of the hotels was closed during 1996 due to
renovation. As a result, the pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for nine hotels for
the year ended December 31, 1996 (excluding the La Guardia Airport Hotel
which was closed for renovation during 1996).
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Merger had been consummated at the beginning of the period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
219
<PAGE>
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Merger, the adjustment represents interest expense on current debt
obligations and interest expense related to certain capital lease
obligations which are expected to be assumed in connection with the
Merger. Patriot REIT expects to refinance substantially all of Wyndham's
long-term debt with borrowings under the Revolving Credit Facility and
Term Loan. Patriot REIT will pay an estimated $15,875 in mortgage
prepayment penalties. This amount will be reported as an extraordinary
item in Patriot REIT's results of operations following the completion of
the Wyndham Transactions and has been reflected as an adjustment to
retained earnings for pro forma presentation purposes. In addition, the
Revolving Credit Facility and Term Loan generally have more favorable
interest rates than the debt expected to be repaid. The deferred loan
costs are being amortized using the straight-line method over the terms of
the loans. Interest expense incurred on the Revolving Credit Facility and
Term Loan borrowings assumes an average interest rate of 7.183%
(representing LIBOR plus 1.7%) and 7.233% per annum (representing LIBOR
plus 1.75%), respectively. An increase of 0.25% in the interest rate would
increase pro forma interest expense to $120,966, decrease net income
applicable to common shareholders to $24,838 and decrease net income per
common share to $0.25, based on 99,579 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E . These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in losses of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 12.3%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 16.3%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares, pro forma interest expense would
decrease by $7,183, net income would be $34,136 and net income per common
share would be $0.33, based on 102,811 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 99,579 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares of common stock.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.29 per common share. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
220
<PAGE>
PATRIOT REIT
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT
REIT CROW ASSETS
PRO FORMA ACQUISITION MERGER PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) ADJUSTMENTS TOTAL
--------- ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $117,348 $23,461 $ 17,321 $ -- $158,130
Racecourse facility,
hotel and land lease
revenue .............. 2,802 -- 9,630 1,182 (D) 13,614
Interest and other
income................ 2,806 -- -- -- 2,806
-------- ------- -------- ------- --------
Total revenue.......... 122,956 23,461 26,951 1,182 174,550
-------- ------- -------- ------- --------
Expenses:
Ground lease and hotel
lease expense......... 2,804 -- 9,630 (E) -- 12,434
General and
administrative........ 5,077 50 (F) 100 (E) -- 5,227
Interest expense....... 32,694 11,716 (F) 10,492 (F) 4,461 (F) 59,363
Real estate and
personal property
taxes and casualty
insurance............. 12,084 2,077 4,300 -- 18,461
Depreciation and
amortization.......... 32,188 6,016 (G) 9,510 (G) -- 47,714
-------- ------- -------- ------- --------
Total expenses......... 84,847 19,859 34,032 4,461 143,199
-------- ------- -------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 38,109 3,602 (7,081) (3,279) 31,351
Equity in earnings
(losses) of
unconsolidated
subsidiaries.......... 3,093 -- 193 234 (H) 3,520
-------- ------- -------- ------- --------
Income (loss) before
income tax provision
and minority
interests.............. 41,202 3,602 (6,888) (3,045) 34,871
Income tax provision... (85) -- -- (87) (I) (172)
-------- ------- -------- ------- --------
Income (loss) before mi-
nority interests....... 41,117 3,602 (6,888) (3,132) 34,699
Minority interest in
the Patriot REIT
Partnership........... (6,541) (443) 847 1,990 (J) (4,147)
Minority interest in
consolidated subsidi-
aries................. (987) -- -- -- (987)
-------- ------- -------- ------- --------
Net income (loss)
applicable to common
shareholders........... $ 33,589 $ 3,159 $ (6,041) $(1,142) $ 29,565 (K)
======== ======= ======== ======= ========
Net income (loss) per
common share(L)........ $ 0.45 $ 0.30 (K)
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Patriot REIT for the six
months ended June 30, 1997 assuming the following transactions had
occurred at the beginning of the period presented: (i) the Cal Jockey
Merger and the transactions related thereto; (ii) the PaineWebber Land
Sale was consummated, the PaineWebber affiliate leases that portion of the
land upon which the Racecourse is situated to Patriot REIT and Patriot
REIT subleased this land and the related improvements to Patriot Operating
Company; (iii) Patriot REIT leased certain land to Borders, Inc.; (iv)
Patriot REIT acquired the Recent Acquisitions (excluding the Park Shore
Hotel) and the CHC Hotels; (v) the mortgage notes to affiliates of CHC
Lease Partners have been funded; (vi) Patriot REIT replaced the Old Line
of Credit with the Revolving Credit Facility and the Term Loan; (vii)
Patriot REIT acquired the Participating Note; (viii) the Offering of
10,580,000 Paired Shares was completed; and (ix) Patriot REIT acquired
eight leases from CHC Lease Partners and re-leased such hotels to Patriot
Operating Company. See page 196.
(B) Represents adjustments to Patriot REIT's results of operations assuming
the Crow Assets Acquisition (10 hotels) had occurred at the beginning of
the period presented. The pro forma results of operations for the Crow
Assets Acquisition reflects the results of operations for ten hotels for
the six months ended June 30, 1997.
(C) Represents adjustments to Patriot REIT's results of operations assuming
the Merger had been consummated at the beginning of the period presented.
(D) Represents the increase in hotel lease revenue for those hotels which are
leased by Patriot REIT from third parties and then sub-leased to Wyndham
International.
(E) Represents adjustment for estimated incremental administrative salaries
and other expenses expected to be incurred by Patriot REIT.
(F) For the Crow Assets Acquisition, the adjustment represents interest
expense incurred on net borrowings under the Revolving Credit Facility and
Term Loan, which will be used to purchase the hotel properties. For the
Merger, the adjustment represents interest expense
221
<PAGE>
on current debt obligations and interest expense related to certain capital
lease obligations which are expected to be assumed in connection with the
Merger. Patriot REIT expects to refinance Wyndham's long-term debt with
borrowings under the Revolving Credit Facility and Term Loan. Patriot REIT
will pay approximately $15,875 in mortgage prepayment penalties. This amount
will be reported as an extraordinary item in Patriot REIT's results of
operations following the completion of the Wyndham Transactions and has been
reflected as an adjustment to retained earnings for pro forma presentation
purposes. In addition, the Revolving Credit Facility and Term Loan generally
have more favorable interest rates than the debt expected to be repaid. The
deferred loan costs are being amortized using the straight-line method over
the terms of the loans. Interest expense incurred on the Revolving Credit
Facility and Term Loan borrowings assumes an average interest rate of 7.264%
(representing LIBOR plus 1.7%) and 7.341% per annum (representing LIBOR plus
1.75%), respectively. An increase of 0.25% in the interest rate would
increase pro forma interest expense to $61,008, decrease net income
applicable to common shareholders to $27,930 and decrease net income per
common share to $0.28, based on 100,108 weighted average number of common
shares and common share equivalents outstanding.
(G) Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for hotel buildings and
improvements and 5 to 7 years for F, F & E. These estimated useful lives
are based on management's knowledge of the properties and the hotel
industry in general.
(H) Represents equity in income of the New Non-Controlled Subsidiaries which
own the Wyndham tradenames and franchise related assets, the management
and franchising contracts and the hotel management company, which will be
controlled by Wyndham International.
(I) Represents provision for Patriot REIT's estimated state tax liability.
(J) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 12.3%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 16.3%.
(K) The pro forma balances assume Wyndham stockholders elect to receive cash
for their shares of Wyndham Common Stock up to the maximum funds available
of $100,000 and the remaining outstanding shares of Wyndham Common Stock
are exchanged for Paired Shares. If no Wyndham stockholders elect to
receive cash (and, therefore, all outstanding shares of Wyndham Common
Stock are exchanged for Paired Shares, pro forma interest expense would
decrease by $3,632, net income would be $32,863 and net income per common
share would be $0.32, based on 103,340 weighted average number of common
shares and common share equivalents outstanding.
(L) Pro forma earnings per share is computed based on 100,108 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issue Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be $0.31 per common share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
222
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue............ $338,448 $ 64,362 $128,248 $16,228 $ -- $ 547,286
Other hotel revenues.... 233,844 44,303 40,920 10,310 -- 329,377
Racecourse facility
revenue................ 51,946 -- -- -- -- 51,946
Management fee, service
fee and reimbursement
income................. 13,522 -- 41,978 -- (6,275)(E) 49,225
Interest and other
income................. 10,012 -- 2,250 -- -- 12,262
-------- -------- -------- ------- -------- ---------
Total revenue........... 647,772 108,665 213,396 26,538 (6,275) 990,096
-------- -------- -------- ------- -------- ---------
Expenses:
Departmental costs--
hotel, club and spa
operations............. 241,792 44,914 71,913 9,949 -- 368,568
Racecourse facility
operations............. 46,351 -- -- -- -- 46,351
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses............... 11,143 -- 32,666 -- -- 43,809
General and
administrative......... 71,700 10,495 18,276 3,305 101 (G) 103,877
Ground lease and hotel
lease expense ......... 733 -- -- -- 11,769 (F) 12,502
Repair and maintenance.. 29,897 4,884 6,066 1,144 -- 41,991
Utilities............... 26,843 4,351 4,585 1,055 -- 36,834
Marketing............... 51,238 8,375 9,226 1,738 -- 70,577
Management fees......... 9,469 5,349 (E) -- 926 (E) (6,275)(E) 9,469
Depreciation and
amortization........... 10,348 -- 13,016 (H) -- 5,691 (H) 29,055
Participating lease
payments............... 172,119 (I) 34,235 (I) 31,845 (I) 9,019 (I) -- 247,218
Interest expense........ 1,393 -- -- -- -- 1,393
Real estate and personal
property taxes and
insurance.............. 398 -- 449 -- -- 847
-------- -------- -------- ------- -------- ---------
Total expenses.......... 673,424 112,603 188,042 27,136 11,286 1,012,491
-------- -------- -------- ------- -------- ---------
Income (loss) before
income tax provision and
minority interests...... (25,652) (3,938) 25,354 (598) (17,561) (22,395)
Income tax (provision)
benefit................ (760) -- (4,177)(J) -- 12,469 (J) 7,532
-------- -------- -------- ------- -------- ---------
Income (loss) before mi-
nority interests........ (26,412) (3,938) 21,177 (598) (5,092) (14,863)
Minority interest in the
Patriot Operating
Company Partnership.... 4,437 508 (K) (2,732)(K) 77 (K) (976) (K) 1,314
Minority interest in
consolidated
subsidiaries........... -- -- -- -- 4,679 (L) 4,679
-------- -------- -------- ------- -------- ---------
Net income (loss)
applicable to common
shareholders............ $(21,975) $ (3,430) $ 18,445 $ (521) $ (1,389) $ (8,870)
======== ======== ======== ======= ======== =========
Net income (loss) per
common share(M)......... $ (0.30) $ (0.09)
======== =========
</TABLE>
See notes on following page.
- --------
(A) Represents the pro forma results of operations of Patriot Operating
Company for the year ended December 31, 1996 assuming the following
transactions had occurred at the beginning of the period presented:
(i) the Cal Jockey Merger and the transactions related thereto; (ii) the
Paine Webber Land Sale was consummated, the Paine Webber affiliate leased
that portion of the land upon which the Racecourse is situated to Patriot
REIT and Patriot REIT subleased this land and the related improvements to
Patriot Operating Company; (iii) Patriot REIT leased certain land to
Borders, Inc.; (iv) Patriot Operating Company completed the Grand Heritage
Acquisition and acquired PAH RSI Lessee; (v) Patriot REIT acquired the
Recent Acquisitions (except for the Park Shore Hotel) and the CHC Hotels
and leased 21 of such hotels to Patriot Operating Company; (vi) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vii)
Patriot REIT replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; (viii) Patriot REIT acquired the Participating
Note; (ix) the Offering of 10,580,000 Paired Shares was completed; (x) the
GAH Acquisition was completed; and (xi) the CHCI Merger was completed. See
page 199.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred at the
beginning of the period presented. One of the hotels was closed during
1996 due to renovation. As a result, the pro
223
<PAGE>
forma results of operations for the Crow Assets Acquisition reflects the
results of operations for nine hotels for the year ended December 31, 1996.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Merger and the Related Transactions had been consummated at
the beginning of the period presented. The pro forma adjustments are based
on the historical results of operations of Wyndham as of December 31, 1996
adjusted for certain transactions, including the acquisition of ClubHouse,
all hotels and management contracts acquired during 1996 and Wyndham's
initial public offering and related transactions, as if such transactions
had occurred at the beginning of the period presented.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels currently leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International at the beginning of the period
presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
Wyndham International and managed by a New Non-Controlled Subsidiary.
(F) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200 and the elimination of certain
other expenses of $99.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 12.9%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 16.8%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 99,579 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be a net loss of $0.09 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
224
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT ADJUSTMENTS
OPERATING ------------------------------------------
COMPANY CROW ASSETS
PRO FORMA ACQUISITION MERGER WYNDHAM PRO FORMA
TOTAL(A) PRO FORMA(B) PRO FORMA(C) PRO FORMA(D) ADJUSTMENTS TOTAL
--------- ------------ ------------ ------------ ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $186,840 $38,791 $73,004 $8,923 $ -- $307,558
Other hotel revenue.... 126,854 24,698 24,979 5,391 -- 181,922
Racecourse facility
revenue............... 22,538 -- -- -- -- 22,538
Management fee, service
fee and reimbursement
income................ 7,866 -- 22,793 -- (2,792)(E) 27,867
Interest and other
income................ 5,364 -- 1,371 -- -- 6,735
-------- ------- ------- ------ ------- --------
Total revenue.......... 349,462 63,489 122,147 14,314 (2,792) 546,620
-------- ------- ------- ------ ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 127,484 25,096 33,059 5,229 -- 190,868
Racecourse facility
operations............ 20,282 -- -- -- -- 20,282
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses.............. 6,639 -- 17,898 -- -- 24,537
General and
administrative........ 36,332 6,582 10,800 1,594 127 (G) 55,435
Ground lease and hotel
lease expense......... 446 -- -- -- 10,812 (F) 11,258
Repair and
maintenance........... 15,882 2,620 4,258 594 -- 23,354
Utilities.............. 12,887 2,408 11,559 544 -- 27,398
Marketing.............. 26,629 4,599 7,040 906 -- 39,174
Management fees........ 6,000 2,329 (E) -- 463 (E) (2,792)(E) 6,000
Depreciation and
amortization.......... 5,113 -- 7,663 (H) -- 2,164 (H) 14,940
Participating lease
payments.............. 95,694 23,461 (I) 17,321 (I) 4,990 (I) -- 141,466
Interest expense....... 623 -- -- -- -- 623
Real estate and
personal property
taxes and casuality
insurance ............ 220 -- -- -- -- 220
-------- ------- ------- ------ ------- --------
Total expenses......... 354,231 67,095 109,598 14,320 10,311 555,555
-------- ------- ------- ------ ------- --------
Income (loss) before
income tax provision
and minority
interests.............. (4,769) (3,606) 12,549 (6) (13,103) (8,935)
Income tax (provision)
benefit............... 222 -- (6,943)(J) -- 11,612 4,891
-------- ------- ------- ------ ------- --------
Income (loss) before mi-
nority interests....... (4,547) (3,606) 5,606 (6) (1,491) (4,044)
Minority interest in
the Patriot Operating
Company Partnership... 764 465 (K) (723)(K) 1 (K) 45 (K) 552
Minority interest in
consolidated
subsidiaries.......... -- -- -- -- (234)(L) (234)
-------- ------- ------- ------ ------- --------
Net income (loss)
applicable to common
shareholders........... $ (3,783) $(3,141) $ 4,883 $ (5) $(1,680) $ (3,726)
======== ======= ======= ====== ======= ========
Net income per common
share(M)............... $ (0.05) $ (0.04)
======== ========
</TABLE>
See notes on following page.
225
<PAGE>
- --------
(A) Represents the pro forma results of operations of Patriot Operating
Company for the six months ended June 30, 1997 assuming the following
transactions had occurred at the beginning of the period presented: (i)
the Cal Jockey Merger and the transactions related thereto (ii) the
PaineWebber Land Sale was consummated, the Paine Webber affiliate leased
that portion of the land upon which the Racecourse is situated to Patriot
REIT and Patriot REIT subleased this land and the related improvements to
Patriot Operating Company; (iii) Patriot REIT leased certain land to
Borders, Inc.; (iv) Patriot Operating Company completed the Grand Heritage
Acquisition and acquired PAH RSI Lessee; (v) Patriot REIT acquired the
Recent Acquisitions (except for the Park Shore Hotel) and the CHC Hotels
and leased 21 of such hotels to Patriot Operating Company; (vi) the
mortgage notes to affiliates of CHC Lease Partners have been funded; (vii)
Patriot REIT replaced the Old Line of Credit with the Revolving Credit
Facility and the Term Loan; (viii) Patriot REIT acquired the Participating
Note; (ix) the Offering of 10,580,000 Paired Shares was completed; (x) the
GAH Acquisition was completed; and (xi) the CHCI Merger was completed. See
page 202.
(B) Represents adjustments to Wyndham International's results of operations
assuming the Crow Assets Acquisition (10 hotels) had occurred at the
beginning of the period presented. The pro forma results of operations for
the Crow Assets Acquisition reflects the results of operations for ten
hotels for the six months ended June 30, 1997.
(C) Represents adjustments to Wyndham International's results of operations
assuming the Merger had been consummated at the beginning of the period
presented. The pro forma adjustments are based on the historical results
of operations of Wyndham as of June 30, 1997 adjusted for certain
transactions, including the acquisition of ClubHouse and all hotels and
management contracts acquired during the first six months of 1997, as if
such transactions had occurred at the beginning of the period presented.
(D) Represents adjustments to Wyndham International's results of operations
assuming the two hotels currently leased by Crow Hotel Lessee, Inc. had
been leased by Wyndham International at the beginning of the period
presented.
(E) Represents the elimination of management fees for the hotels previously
leased to the Crow Hotel Lessee, Inc. which are assumed to be leased by
Wyndham International and managed by a New Non-Controlled Subsidiary.
(F) Represents pro forma lease expense related to the sub-lease agreement with
Patriot REIT for those hotel properties leased by Patriot REIT from third
party owners.
(G) Represents incremental general and administrative expenses expected to be
incurred by Wyndham International of $200 and the elimination of certain
other expenses of $73.
(H) Represents adjustments to depreciation of furniture and equipment and
amortization of goodwill, tradenames and franchise-related intangible
assets. Depreciation is computed using the straight-line method and is
based upon the estimated useful lives of 5 to 7 years for F, F & E.
Amortization of goodwill, tradenames and franchise costs is computed using
the straight-line method over estimated useful lives ranging from 20 to 35
years. Amortization of management contracts is computed using the
straight-line method over the 14-year average remaining term of the
related management agreements.
(I) Represents lease payments from Wyndham International to Patriot REIT
calculated on a pro forma basis by applying the provisions of the
Participating Leases to the historical revenue of the hotels for the
period presented.
(J) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the Wyndham Transactions.
(K) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the Wyndham Transactions of
approximately 12.9%. The estimated minority interest percentage prior to
the Wyndham Transactions is approximately 16.8%.
(L) Represents adjustment for minority interest in the New Non-Controlled
Subsidiaries held by Patriot REIT.
(M) Pro forma earnings per share is computed based on 100,108 weighted average
common shares and common share equivalents outstanding for the period. The
number of shares used for the calculation includes adjustments to reflect
the impact of the conversion of shares of Patriot Operating Company
preferred stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be a net loss of $0.04 per common share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
226
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Patriot REIT leases each of its hotels, except those hotels leased to
Patriot Operating Company and except the Crowne Plaza Ravinia Hotel and the
Wyndham WindWatch Hotel, which are separately owned through Non-Controlled
Subsidiaries, to Lessees. The Combined Lessees subsequent to (i) the Wyndham
Transactions, (ii) the Cal Jockey Merger and the transactions related thereto,
(iii) the Grand Heritage Acquisition (which included the acquisition of Grand
Heritage Leasing, L.L.C. which leased three hotels from Patriot REIT), (iv)
the acquisition of PAH RSI Lessee (which included the acquisition of eight
Patriot REIT hotel leases); and (v) the GAH Acquisition and the CHCI Merger
(which included the acquisition of 25 Patriot REIT hotel leases from CHC Lease
Partners) consist of NorthCoast Lessee which leases 11 hotels (excluding the
Park Shore Hotel), Doubletree Lessee which leases four hotels, and Metro Lease
Partners which leases one hotel. Patriot REIT also leases two hotels to Crow
Hotel Lessee, Inc. (the Wyndham Garden Hotel-Midtown and the Wyndham
Greenspoint Hotel). Subsequent to the completion of the Wyndham Transactions,
Patriot REIT expects to terminate its leases with Crow Hotel Lessee, Inc. and
re-lease such hotels to Wyndham International. The Participating Leases
provide for staggered terms of one to twelve years and the payment of the
greater of base or participating rent, plus certain additional charges, as
applicable.
The following Combined Lessees' unaudited Pro Forma Condensed Combined
Statements of Operations for the year ended December 31, 1996 and the six
months ended June 30, 1997 are presented as if the 16 hotels that Patriot REIT
leases to the Combined Lessees pursuant to Participating Leases (excluding the
Park Shore Hotel) had been leased as of January 1, 1996. The 25 hotels leased
to CHC Lease Partners, the eight hotels leased to PAH RSI Lessee, the three
hotels leased to Grand Heritage Leasing, L.L.C. and the two hotels leased to
Crow Hotel Lessee, Inc. are assumed to have been leased to Wyndham
International and, therefore, have been eliminated from the Pro Forma
Condensed Combined Statements of Operations for the Combined Lessees. The pro
forma information is based in part upon the Statements of Operations of
NorthCoast Lessee filed with Old Patriot REIT's Annual Report on Form 10-K for
the year ended December 31, 1996 and the Statements of Operations of
NorthCoast Lessee filed with Patriot REIT's and Patriot Operating Company's
Joint Quarterly Report on Form 10-Q for the six months ended June 30, 1997 and
the Pro Forma Statement of Operations of the Combined Lessees located
elsewhere in this Joint Proxy Statement/Prospectus. In management's opinion,
all material adjustments necessary to reflect the effects of these
transactions have been made.
The unaudited Pro Forma Condensed Combined Statements of Operations are not
necessarily indicative of what the actual results of operations of the
Combined Lessees would have been assuming such transactions had been completed
as of the beginning of the periods presented, nor do they purport to represent
the results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended June
30, 1997 is not necessarily indicative of the results of operations for the
full year.
227
<PAGE>
COMBINED LESSEES
ADJUSTED FOR THE WYNDHAM TRANSACTIONS
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------
(IN THOUSANDS)
<S> <C> <C>
Revenue:
Room................................................... $72,182 $37,341
Food and beverage...................................... 28,499 14,702
Telephone and other.................................... 5,906 2,972
------- -------
Total revenue....................................... 106,587 55,015
------- -------
Expenses:
Departmental costs and expenses........................ 44,615 22,772
General and administrative............................. 8,626 4,640
Ground lease expense................................... 2,496 903
Repair and maintenance................................. 5,526 2,761
Utilities.............................................. 4,380 1,980
Marketing.............................................. 7,431 3,941
Insurance.............................................. 763 72
Participating lease payments(A)........................ 32,730 16,664
------- -------
Total expenses...................................... 106,567 53,733
------- -------
Income before lessee income (expense)................... 20 1,282
------- -------
Dividend and interest income(B)......................... 142 1,039
Management fees(C)...................................... (2,553) (1,547)
Lessee general and administrative(D).................... (478) (309)
------- -------
(2,889) (817)
------- -------
Net income (loss)....................................... $(2,869) $ 465
======= =======
</TABLE>
- --------
(A) Represents lease payments calculated on a pro forma basis by applying the
provisions of the Participating Leases to the historical revenue of the
hotels.
(B) Includes dividend income on OP Units in the Patriot Partnerships which
form a portion of the required capitalization of NorthCoast Lessee. Pro
forma amounts exclude additional dividend income earned on OP Units held
by certain Lessees, and pro forma interest income earned on invested cash
balances.
(C) Represents pro forma management fees paid to the Operators under the terms
of their respective management agreements with the Lessees.
(D) Represents pro forma overhead expenses, which include an estimate of the
Lessees' salaries and benefits, professional fees, insurance costs and
administrative expenses.
228
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL ADJUSTED FOR THE WHG MERGER
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS)
On September 30, 1997, Patriot REIT, Patriot Operating Company and WHG
entered into the WHG Merger Agreement providing for the merger of a newly-
formed subsidiary of Patriot Operating Company (and subsequent to the Merger,
Wyndham International) with and into WHG, with WHG being the surviving
corporation. As a result of the WHG Merger, Wyndham International will acquire
the Condado Plaza Hotel & Casino, a 50% interest in the El San Juan Hotel &
Casino and a 23.3% interest in the El Conquistador, all of which are located
in Puerto Rico, as well as a 62% interest in Williams Hospitality Group, Inc.,
the management company for the three hotels and the Las Casitas Village at El
Conquistador.
Under the terms of the WHG Merger Agreement, each share of WHG Common Stock
generally will be converted into the right to receive 0.784 Paired Shares;
provided, however, that in the event that (i) the Patriot/WHG Average Closing
Price is greater than $31.25 and the effective time of the WHG Merger is
before February 1998, the WHG Exchange Ratio will be adjusted such that the
WHG Exchange Ratio Product equals $24.50, (ii) the Patriot/WHG Average Closing
Price is greater than $31.75 and the effective time of the WHG Merger is in
February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $24.89, (iii) the Patriot/WHG Average Closing
Price is greater than $32.25 and the effective time of the WHG Merger is after
February 1998, the WHG Exchange Ratio will be adjusted such that the WHG
Exchange Ratio Product equals $25.28, (iv) the Patriot/WHG Average Closing
Price is less than or equal to $25.50, but greater than or equal to $19.50,
the WHG Exchange Ratio will be adjusted such that the WHG Exchange Ratio
Product equals $20.00, or (v) the Patriot/WHG Average Closing Price is less
than $19.50, the WHG Exchange Ratio will equal 1.026, provided, however, that
in such circumstances WHG has the right, waivable by it, to terminate the WHG
Merger Agreement.
In addition, each issued and outstanding share of WHG Series B Convertible
Preferred Stock will be converted into the right to receive that number of
Paired Shares that the holder of such shares of WHG Series B Convertible
Preferred Stock would have the right to receive assuming conversion of such
shares, together with any accrued and unpaid dividends thereon, into shares of
WHG Common Stock immediately prior to the effective time of the WHG Merger.
The Pro Forma Financial Statements have been adjusted for the purchase
method of accounting whereby the hotel and related improvements and other
assets and liabilities owned by WHG are adjusted to estimated fair market
value. The fair market value of the assets and liabilities of WHG has been
determined based upon preliminary estimates and is subject to change as
additional information is obtained. Management does not anticipate that the
preliminary allocation of purchase costs based upon the estimated fair market
value of the assets and liabilities of WHG will materially change; however,
the allocation of purchase costs are subject to final determination based upon
estimates and other evaluations of fair market value as of the close of the
transaction. Therefore, the allocation reflected in the following unaudited
Pro Forma Financial Statements may differ from the amounts ultimately
determined.
The following unaudited Pro Forma Condensed Combined Statement of Operations
as adjusted for the WHG Merger for the year ended December 31, 1996 and the
six months ended June 30, 1997 are derived from (i) the Patriot REIT and
Patriot Operating Company Pro Forma Condensed Combined Statements of
Operations as adjusted for the Wyndham Transactions for the year ended
December 31, 1996 and the six months ended
229
<PAGE>
June 30, 1997 included elsewhere in this Joint Proxy Statement/Prospectus and
(ii) the Consolidated Statements of Operations of WHG filed with WHG's Annual
Report on Form 10-K for the year ended June 30, 1997. As a result of the WHG
Merger, WHG will become a wholly owned subsidiary of Wyndham International.
Consequently the WHG Merger has minimal impact on the pro forma operating
results of Patriot REIT. As a result, separate unaudited Pro Forma Condensed
Statements of Operations for Patriot REIT, adjusted for the WHG Merger have
not been presented.
The following unaudited Pro Forma Condensed Combined Statements of
Operations are not necessarily indicative of what the actual results of
operations of Patriot REIT and Wyndham International as adjusted for the WHG
Merger would have been assuming such transactions had been completed as of the
beginning of the periods presented, nor do they purport to represent the
results of operations for future periods. Further, the unaudited Pro Forma
Condensed Combined Statement of Operations for the interim period ended June
30, 1997 is not necessarily indicative of the results of operations for the
full year.
230
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
PATRIOT WYNDHAM
REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue............... $279,948 $ -- $(247,218)(C) $ 32,730
Hotel revenue.......... -- 931,559 -- 931,559
Racecourse facility
revenue, hotel and
land lease revenue.... 17,714 51,946 (17,380)(D) 52,280
Management fee, service
fee and reimbursement
income................ -- 62,221 -- 62,221
Interest and other
income................ 2,797 14,346 (5,916)(E) 11,227
-------- ---------- --------- ----------
Total revenue.......... 300,459 1,060,072 (270,514) 1,090,017
-------- ---------- --------- ----------
Expenses:
Departmental costs--
hotel operations...... -- 403,122 -- 403,122
Racecourse facility
operations............ -- 46,351 (5,611)(D) 40,740
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses.............. -- 47,564 -- 47,564
General and
administrative........ 7,097 110,110 (34)(E) 117,173
Ground lease and hotel
lease expense......... 16,824 12,502 (11,769)(D) 17,557
Repair and
maintenance........... -- 41,991 -- 41,991
Utilities.............. -- 36,834 -- 36,834
Interest expense....... 117,679 4,866 (5,882)(E) 116,663
Real estate and
personal property
taxes and casualty
insurance............. 34,542 847 -- 35,389
Marketing.............. -- 73,533 -- 73,533
Management fees........ -- 9,469 -- 9,469
Depreciation and
amortization.......... 93,775 40,573 -- 134,348
Participating lease
payments.............. -- 247,218 (247,218)(C) --
-------- ---------- --------- ----------
Total expenses......... 269,917 1,074,980 (270,514) 1,074,383
-------- ---------- --------- ----------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income
tax provision and
minority interests..... 30,542 (14,908) -- 15,634
Equity in earnings of
unconsolidated
subsidiaries.......... 3,243 (3,407) 4,679 (F) 4,515
-------- ---------- --------- ----------
Income (loss) before
income tax provision
and minority
interests.............. 33,785 (18,315) 4,679 20,149
Income tax (provision)
benefit............... (345) 4,647 -- 4,302
-------- ---------- --------- ----------
Income (loss) before
minority interests..... 33,440 (13,668) 4,679 24,451
Minority interests in
the Patriot
Partnerships.......... (3,729) 1,574 -- (2,155)
Minority interest in
consolidated
subsidiaries ......... (1,832) 975 (4,679)(F) (5,536)
-------- ---------- --------- ----------
Net income (loss)
applicable to common
shareholders........... $ 27,879 $ (11,119) $ -- $ 16,760
======== ========== ========= ==========
Net income (loss) per
common Paired
Share(G)............... $ 0.27 $ (0.11) $ 0.16
======== ========== ==========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the year ended December 31, 1996 as
adjusted for the Wyndham Transactions. See page 219. Minority interest in
the Patriot REIT Partnership has been decreased by $158 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 11.8%. The estimated minority interest
percentage prior to the WHG Merger is approximately 12.3%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the year ended
December 31, 1996 as adjusted for the Wyndham Transactions. See page 223.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) The pro forma adjustments represent the elimination of $1,170 of interest
income and expense related to a note receivable issued to Old Patriot REIT
in connection with the sale of certain assets to PAH RSI Lessee, which
assets are assumed to be acquired by Patriot Operating Company, the
elimination of $4,712 of interest income and expense related to the
Subscription Notes issued to Patriot Operating Company in connection with
the subscription for shares of Patriot Operating Company Common Stock and
Patriot Operating Company Partnership OP Units issued in connection with
the Cal Jockey Merger and the elimination of $34 of other intercompany
income and expense items.
(F) Represents the elimination of equity in losses of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 104,583 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares and the conversion of
WHG Series B Convertible Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be $0.17 per common Paired Share. The impact of Statement 128
on the calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
231
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
PATRIOT REIT INTERNATIONAL PRO FORMA
PRO FORMA(A) PRO FORMA(B) ELIMINATIONS TOTAL
------------ ------------- ------------ ----------
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenue:
Participating lease
revenue................. $158,130 $ -- $(141,466)(C) $ 16,664
Hotel revenue............ -- 520,027 -- 520,027
Racecourse facility
revenue, hotel and land
lease revenue........... 13,614 22,538 (13,447)(D) 22,705
Management fee, service
fee and reimbursement
income.................. -- 36,900 -- 36,900
Interest and other
income.................. 2,806 7,978 (2,965)(E) 7,819
-------- -------- --------- --------
Total revenue............ 174,550 587,443 (157,878) 604,115
-------- -------- --------- --------
Expenses:
Departmental costs--hotel
operations.............. -- 208,119 -- 208,119
Racecourse facility
operations.............. -- 20,282 (2,635)(D) 17,647
Direct operating costs of
management company,
service department,
development and
reimbursement expenses.. -- 26,620 -- 26,620
General and
administrative.......... 5,227 59,281 (24)(E) 64,484
Ground lease and hotel
lease expense........... 12,434 11,258 (10,812)(D) 12,880
Repair and maintenance... -- 23,354 -- 23,354
Utilities................ -- 27,398 -- 27,398
Interest expense......... 59,363 2,214 (2,941)(E) 58,636
Real estate and personal
property taxes and
casualty insurance...... 18,461 220 -- 18,681
Marketing................ -- 40,691 -- 40,691
Management fees.......... -- 6,000 -- 6,000
Depreciation and
amortization............ 47,714 20,823 -- 68,537
Participating lease
payments................ -- 141,466 (141,466)(C) --
-------- -------- --------- --------
Total expenses........... 143,199 587,726 (157,878) 573,047
-------- -------- --------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries, income tax
provision and minority
interests................ 31,351 (283) -- 31,068
Equity in earnings of
unconsolidated
subsidiaries............ 3,520 1,576 (234)(F) 4,862
-------- -------- --------- --------
Income before income tax
provision and minority
interests................ 34,871 1,293 (234) 35,930
Income tax (provision)
benefit................. (172) 2,718 -- 2,546
-------- -------- --------- --------
Income before minority
interests................ 34,699 4,011 (234) 38,476
Minority interests in the
Patriot Partnerships.... (3,978) (129) -- (4,107)
Minority interest in
consolidated
subsidiaries............ (987) (2,972) 234 (F) (3,725)
-------- -------- --------- --------
Net income applicable to
common shareholders...... $ 29,734 $ 910 $ -- $ 30,644
======== ======== ========= ========
Net income per common
Paired Share(G).......... $ 0.28 $ 0.01 $ 0.29
======== ======== ========
</TABLE>
- --------
(A) Patriot REIT Pro Forma balances are derived from the pro forma results of
operations of Patriot REIT for the six months ended June 30, 1997 as
adjusted for the Wyndham Transactions. See page 221. Minority interest in
the Patriot REIT Partnership has been decreased by $169 to reflect the
decrease in the estimated minority interest percentage subsequent to the
WHG Merger to approximately 11.8%. The estimated minority interest
percentage prior to the WHG Merger is approximately 12.3%.
(B) Wyndham International Pro Forma balances are derived from the pro forma
results of operations of Patriot Operating Company for the six months
ended June 30, 1997 as adjusted for the Wyndham Transactions. See page
225.
(C) Represents elimination of participating lease revenue and expense related
to the 61 hotel properties leased by Patriot REIT to Wyndham
International.
(D) Represents elimination of rental income and expense related to the
Racecourse facility, land leased and the hotels sub-leased by Patriot REIT
to Wyndham International.
(E) Represents primarily the elimination of $585 of interest income and
expense related to a note receivable issued to Old Patriot REIT in
connection with the sale of certain assets to PAH RSI Lessee, which assets
are assumed to be acquired by Patriot Operating Company, the elimination
of $2,356 of interest income and expense related to the Subscription Notes
issued to Patriot Operating Company in connection with the subscription
for shares of Patriot Operating Company Common Stock and Patriot Operating
Company Partnership OP Units issued in connection with the Cal Jockey
Merger, and the elimination of $24 of other intercompany income and
expense items.
(F) Represents the elimination of equity in income of the New Non-Controlled
Subsidiaries.
(G) Pro forma earnings per share is computed based on 105,169 weighted average
common Paired Shares and common Paired Share equivalents outstanding for
the period. The number of shares used for the calculation includes
adjustments to reflect the impact of the conversion of shares of Patriot
Operating Company preferred stock into Paired Shares and the conversion of
WHG Series B Convertible Preferred Stock into Paired Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be $0.31 per common Paired Share. The impact of
Statement 128 on the calculation of diluted earnings per share is not
expected to differ significantly from the earnings per share amounts
reported.
232
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
The following unaudited Pro Forma Condensed Combined Balance Sheet is
presented as if the WHG Merger had occurred as of June 30, 1997. The Pro Forma
Condensed Combined Balance Sheet is also derived from the Patriot REIT and
Patriot Operating Company Pro Forma Condensed Combined Balance Sheet as
adjusted for the Wyndham Transactions as of June 30, 1997 included elsewhere
in this Joint Proxy Statement/Prospectus.
Such pro forma information is based in part upon WHG's Consolidated Balance
Sheet as of June 30, 1997, Old Patriot REIT's Consolidated Balance Sheet as of
June 30, 1997, Wyndham's Consolidated Balance Sheet as of June 30, 1997, and
Patriot REIT's and Patriot Operating Company's Combined Balance Sheet as of
June 30, 1997 and should be read in conjunction with the financial statements
filed with Wyndham's, and the Patriot Companies' respective Quarterly Reports
on Form 10-Q for the six months ended June 30, 1997 and WHG's Annual Report on
Form 10-K for the year ended June 30, 1997. In management's opinion, all
material adjustments necessary to reflect the effect of these transactions
have been made.
The accompanying Pro Forma Condensed Combined Balance Sheet reflects
adjustments to record the net assets of WHG at their estimated fair market
values and the elimination of WHG's historical shareholders' equity. The fair
market values of the assets and liabilities of WHG have been determined based
upon preliminary estimates and are subject to change as additional information
is obtained. Management does not anticipate that the preliminary allocation of
purchase costs based upon the estimated fair market values of the assets and
liabilities of WHG will materially change; however, the allocations of
purchase costs are subject to final determination based upon estimates and
other evaluations of fair market value as of the close of the transaction.
Therefore, the allocations reflected in the following unaudited Pro Forma
Condensed Combined Balance Sheet may differ from the amounts ultimately
determined. The following unaudited Pro Forma Condensed Combined Balance Sheet
is not necessarily indicative of what the actual financial position would have
been assuming such transactions had been completed as of June 30, 1997, nor
does it purport to represent the future financial position of Patriot REIT and
Wyndham International as adjusted for the WHG Merger.
233
<PAGE>
PATRIOT REIT AND WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PATRIOT
REIT AND
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Net investment in hotel
and resort properties
and land held for
sale................... $2,367,677 $ 48,956 $ 31,735 (C) $2,448,368
Net investment in
Racecourse facility and
related improvements... 21,565 -- -- 21,565
Mortgage notes and other
receivables from
unconsolidated
subsidiaries........... 74,424 1,105 40,106 (D) 115,635
Notes and other
receivables from
affiliates............. 21,185 -- -- 21,185
Notes receivable........ 30,853 -- -- 30,853
Investment in
unconsolidated
subsidiaries........... 16,421 30,603 (22,211)(E) 24,813
Cash and cash
equivalents............ 43,653 17,886 -- 61,539
Restricted cash......... 42,189 -- -- 42,189
Accounts receivable,
net.................... 26,715 3,477 -- 30,192
Goodwill................ 439,443 8,710 10,378 (F) 458,531
Deferred expenses, net.. 21,325 -- -- 21,325
Management contract
costs.................. 109,995 -- 43,567 (G) 153,562
Trade name and franchise
costs.................. 102,050 -- -- 102,050
Prepaid expenses and
other assets........... 55,958 6,736 -- 62,694
Deferred income taxes... 727 -- -- 727
---------- -------- -------- ----------
Total assets........... $3,374,180 $117,473 $103,575 $3,595,228
========== ======== ======== ==========
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Borrowings under a line
of credit and mortgage
notes.................. $1,451,830 $ 23,549 $ -- $1,475,379
Notes and other
liabilities............ -- 5,532 -- 5,532
Accounts payable and
accrued expenses....... 73,076 10,440 -- 83,516
Deferred income tax
liability.............. 71,553 2,638 -- 74,191
Deposits................ 1,337 -- -- 1,337
Deferred gain........... -- -- -- --
Due to unconsolidated
subsidiaries........... 6,314 -- -- 6,314
Minority interests in
the Patriot
Partnerships........... 271,495 -- -- 271,495
Minority interest in
consolidated
subsidiaries........... 27,990 19,990 -- 47,980
Shareholders' equity:
Preferred stock........ 44 -- -- 44
Common stock........... 1,905 61 39 (H) 2,005
Paid-in capital........ 1,648,619 14,296 144,503 (I) 1,807,418
Unearned stock compen-
sation, net........... (16,397) -- (16,397)
Notes receivable from
stockholders.......... (16,887) -- -- (16,887)
Receivable from affili-
ates.................. (1,331) -- -- (1,331)
Retained earnings...... (145,368) 40,967 (40,967)(I) (145,368)
---------- -------- -------- ----------
Total shareholders' eq-
uity.................. 1,470,585 55,324 103,575 1,629,484
---------- -------- -------- ----------
Total liabilities and
shareholders' equity.. $3,374,180 $117,473 $103,575 $3,595,228
========== ======== ======== ==========
</TABLE>
See notes on following page.
234
<PAGE>
- --------
(A) Reflects the Pro Forma Condensed Combined Balance Sheet of Patriot REIT
and Patriot Operating Company as of June 30, 1997, which reflects (i) the
Recent Transactions, including the Cal Jockey Merger; (ii) the acquisition
of the CHC Hotels, the GAH Acquisition and the CHCI Merger; and (iii) the
Wyndham Transactions. See page 216.
(B) Represents the Consolidated Balance Sheet of WHG as of June 30, 1997.
(C) Represents adjustment for the purchase method of accounting whereby the
investment in the hotel property owned by WHG is adjusted to record the
assets at their estimated fair market values.
(D) Represents the reclassification of receivables from/advances to WHG
unconsolidated subsidiaries, stated at their historical cost which
approximates their fair value.
(E) Represents the following adjustments:
<TABLE>
<S> <C>
Adjustment to state investments in WHG unconsolidated
subsidiaries at estimated fair market value................. $ 17,895
Reclassify receivables from/advances to WHG unconsolidated
subsidiaries................................................ (40,106)
--------
$(22,211)
========
</TABLE>
(F) Represents purchase consideration in excess of fair market value of the
net assets of WHG.
(G) Represents adjustment for the purchase method of accounting whereby the
management contracts held by WHG are adjusted to their estimated fair
market values. WHG, through certain of its subsidiaries, holds management
contracts for the three resort hotels that it holds ownership interests
in. The contracts have remaining lives of 6 to 14 years and provide for
payment of management fees including a base fee plus certain incentive
fees based on specified criteria as defined in the respective management
agreements.
(H) Represents adjustments to record the exchange of WHG common stock for
Paired Shares and the conversion of the WHG Series B Convertible Preferred
Stock outstanding into its Paired Share equivalent. Pursuant to the WHG
Merger Agreement, WHG stockholders will receive 0.784 Paired Shares for
each share of WHG common stock held by them at the time of the WHG Merger,
subject to certain adjustments. At June 30, 1997, 6,050 shares of WHG
common stock were outstanding and were assumed to be exchanged for
approximately 4,743 Paired Shares (with a par value equal to $0.02 per
Paired Share) resulting in an adjustment to increase common stock.
Subsequent to June 30, 1997, WHG issued 300 shares of Series B Convertible
Preferred Stock. The preferred stock has a stated value of $10.00 per share
(plus adjustment for accrued, unpaid dividends) and is convertible into WHG
common stock based on a value of $9.00 per share for the WHG common stock.
The outstanding shares of WHG Series B Convertible Preferred Stock were
assumed to be converted into approximately 261 Paired Shares (which
represents the number of Paired Shares the holder of such preferred stock
would have the right to receive assuming conversion of such shares into WHG
common stock).
(I) Represents the following adjustments to shareholders' equity:
<TABLE>
<S> <C>
Purchase consideration for shares.............................. $158,899
Adjustment to common stock for Paired Shares issued............ (39)
Book value of WHG common stock................................. (61)
Book value of WHG paid-in capital.............................. (14,296)
--------
Adjustment to paid-in capital................................. 144,503
Elimination of WHG historical retained earnings................ (40,967)
Adjustment to common stock..................................... (39)
--------
Adjustment to shareholders' equity............................ $103,575
========
</TABLE>
235
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Room revenue........... $ 547,286 $25,131 $ -- $ 572,417
Other hotel revenues... 329,377 29,765 -- 359,142
Racecourse facility
revenue............... 51,946 -- -- 51,946
Management fee, service
fee and reimbursement
income................ 49,225 12,996 -- 62,221
Interest and other
income................ 12,262 2,084 -- 14,346
---------- ------- ------- ----------
Total revenue.......... 990,096 69,976 -- 1,060,072
---------- ------- ------- ----------
Expenses:
Departmental costs--
hotel, club and spa
operations............ 368,568 34,554 -- 403,122
Racecourse facility
operations............ 46,351 -- -- 46,351
Direct operating costs
of management company,
service department,
development and
reimbursement
expenses.............. 43,809 3,755 -- 47,564
General and
administrative........ 103,877 6,233 -- 110,110
Ground lease and hotel
lease expense ........ 12,502 -- -- 12,502
Repair and
maintenance........... 41,991 -- -- 41,991
Utilities.............. 36,834 -- -- 36,834
Marketing.............. 70,577 2,956 -- 73,533
Management fees........ 9,469 -- -- 9,469
Depreciation and
amortization.......... 29,055 5,549 5,969 (C) 40,573
Participating lease
payments.............. 247,218 -- -- 247,218
Interest expense....... 1,393 3,473 -- 4,866
Real estate and
personal property
taxes and insurance... 847 -- -- 847
---------- ------- ------- ----------
Total expenses......... 1,012,491 56,520 5,969 1,079,980
---------- ------- ------- ----------
Income (loss) before
equity earnings of
unconsolidated
subsidiaries........... (22,395) 13,456 (5,969) (14,908)
Equity in earnings of
unconsolidated
subsidiaries........... -- (2,896) (511)(D) (3,407)
---------- ------- ------- ----------
Income (loss) before
income tax provision
and minority
interests.............. (22,395) 10,560 (6,480) (18,315)
Income tax (provision)
benefit............... 7,532 (2,152) (733)(E) 4,647
---------- ------- ------- ----------
Income (loss) before mi-
nority interests....... (14,863) 8,408 (7,213) (13,668)
Minority interest in
the Patriot Operating
Company Partnership... 1,314 -- 260 (F) 1,574
Minority interest in
consolidated
subsidiaries.......... 4,679 (3,704) -- 975
---------- ------- ------- ----------
Net income (loss)
applicable to common
shareholders........... $ (8,870) $ 4,704 $(6,953) $ (11,119)
========== ======= ======= ==========
Net income (loss) per
common share(G)........ $ (0.09) $ (0.11)
========== ==========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the year ended December 31, 1996 which reflects adjustments for (i)
the Recent Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
and the CHCI Merger; and (iii) the Wyndham Transactions. See page 223.
(B) Represents the historical consolidated results of operations of WHG for
the twelve months ended December 31, 1996 (excluding the adjustment to
reflect dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $907, amortization of
goodwill of $519 and amortization of management contracts of $4,543.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F & E. Amortization of goodwill is computed using the
straight-line method over a 20-year estimated useful life. Amortization of
management contract costs is computed using the straight-line method over
the remaining terms of the related contracts.
(D) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(E) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
(F) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
12.4%. The estimated minority interest percentage prior to the WHG Merger
is approximately 12.9%.
(G) Pro forma earnings per share subsequent to the WHG Merger is computed
based on 104,583 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculation includes adjustments to reflect the impact of the conversion
of shares of Patriot Operating Company preferred stock into Paired Shares
and the conversion of WHG Series B Convertible Preferred Stock into Paired
Shares.
In February 1997, the Financial Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the year ended December
31, 1996 would be unchanged. The impact of Statement 128 on the calculation
of diluted earnings per share is not expected to differ significantly from
the earnings per share amounts reported.
236
<PAGE>
WYNDHAM INTERNATIONAL
ADJUSTED FOR THE WHG MERGER
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WYNDHAM
INTERNATIONAL
PRO FORMA WHG PRO FORMA
TOTAL(A) HISTORICAL(B) ADJUSTMENTS TOTAL
------------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenue:
Room revenue............. $307,558 $14,468 $ -- $322,026
Other hotel revenue...... 181,922 16,079 -- 198,001
Racecourse facility
revenue................. 22,538 -- -- 22,538
Management fee, service
fee and reimbursement
income.................. 27,867 9,033 -- 36,900
Interest and other
income.................. 6,735 1,243 -- 7,978
-------- ------- ------- --------
Total revenue............ 546,620 40,823 -- 587,443
-------- ------- ------- --------
Expenses:
Departmental costs--
hotel, club and spa
operations.............. 190,868 17,251 -- 208,119
Racecourse facility
operations.............. 20,282 -- -- 20,282
Direct operating costs of
management company,
service department,
development and
reimbursement expenses.. 24,537 2,083 -- 26,620
General and
administrative.......... 55,435 3,846 -- 59,281
Ground lease and hotel
lease expense........... 11,258 -- -- 11,258
Repair and maintenance... 23,354 -- -- 23,354
Utilities................ 27,398 -- -- 27,398
Marketing................ 39,174 1,517 -- 40,691
Management fees.......... 6,000 -- -- 6,000
Depreciation and
amortization............ 14,940 2,898 2,985 (C) 20,823
Participating lease
payments................ 141,466 -- -- 141,466
Interest expense......... 623 1,591 -- 2,214
Real estate and personal
property taxes and
casualty insurance ..... 220 -- -- 220
-------- ------- ------- --------
Total expenses........... 555,555 29,186 2,985 587,726
-------- ------- ------- --------
Income (loss) before
equity in earnings of
unconsolidated
subsidiaries............ (8,935) 11,637 (2,985) (283)
Equity in earnings of
unconsolidated
subsidiaries............ -- 1,832 (256)(D) 1,576
-------- ------- ------- --------
Income (loss) before
income tax provision and
minority interests....... (8,935) 13,469 (3,241) 1,293
Income tax (provision)
benefit................. 4,891 (3,173) 1,000 (E) 2,718
-------- ------- ------- --------
Income (loss) before mi-
nority interests......... (4,044) 10,296 (2,241) 4,011
Minority interest in the
Patriot Operating
Company Partnership..... 552 -- (681)(F) (129)
Minority interest in
consolidated
subsidiaries............ (234) (2,738) -- (2,972)
-------- ------- ------- --------
Net income (loss)
applicable to common
shareholders............. $ (3,726) $ 7,558 $(2,922) $ 910
======== ======= ======= ========
Net income per common
share(G)................. $ (0.04) $ 0.01
======== ========
</TABLE>
- --------
(A) Represents the pro forma results of operations of Wyndham International
for the six months ended June 30, 1997 which reflects adjustments for (i)
the Recent Transactions, including the Cal Jockey Merger and the related
transactions; (ii) the acquisition of the CHC Hotels, the GAH Acquisition
and the GHCI Merger; and (iii) the Wyndham Transactions. See page 225.
(B) Represents the historical consolidated results of operations of WHG for
the six months ended June 30, 1997 (excluding the adjustment to reflect
dividends on preferred stock of Condado Plaza Hotel & Casino).
(C) Represents an increase in depreciation and amortization which results from
the adjustment for the purchase method of accounting whereby by the asset
values are adjusted to their estimated fair market value. The adjustment
represents increases in depreciation expense of $454, amortization of
goodwill of $259 and amortization of management contracts of $2,272.
Depreciation is computed using the straight-line method and is based upon
the estimated useful lives of 35 years for buildings and improvements and
5 to 7 years for F, F &E. Represents adjustments to WHG's depreciation and
amortization to reflect amortization of goodwill and management contract
costs. Amortization of goodwill is computed using the straight-line method
over a 20-year estimated useful life. Amortization of management contract
costs is computed using the straight-line method over the remaining terms
of the related contracts.
(D) Represents adjustment to equity in earnings of unconsolidated subsidiaries
which results from the adjustment for the purchase method of accounting
whereby the investment values are adjusted to their estimated fair market
value. The adjustment to the investment balance is being amortized using
the straight-line method based upon an estimated useful life of 35 years.
(E) Represents adjustments to Wyndham International's estimated federal and
state tax provision for the WHG Merger.
237
<PAGE>
(F) Represents the adjustments to minority interest to reflect the estimated
minority interest percentage subsequent to the WHG Merger of approximately
12.4%. The estimated minority interest percentage prior to the WHG Merger
is approximately 12.9%.
(G) Pro forma earnings per share subsequent to the WHG Merger is computed
based on 105,169 weighted average common shares and common share
equivalents outstanding for the period. The number of shares used for the
calculation includes adjustments to reflect the impact of the conversion
of shares of Patriot Operating Company preferred stock into Paired Shares
and the conversion of WHG Series B Convertible Preferred Stock into Paired
Shares.
In February 1997, the Financing Accounting Standards Board issued Statement
128 which specifies the computation, presentation and disclosure
requirements for basic earnings per share and diluted earnings per share.
Under the new requirements for calculating basic earnings per share, the
dilutive effect of stock options and convertible preferred securities will
be excluded. Pro forma basic earnings per share for the six months ended
June 30, 1997 would be unchanged. The impact of Statement 128 on the
calculation of diluted earnings per share is not expected to differ
significantly from the earnings per share amounts reported.
238
<PAGE>
MANAGEMENT OF PATRIOT REIT AND
WYNDHAM INTERNATIONAL
PATRIOT REIT
Immediately following the Effective Time, the number of directors of Patriot
REIT will be fixed at ten. At such time, the directors of Patriot REIT will be
Paul A. Nussbaum, William W. Evans III, John C. Deterding, John H. Daniels,
Gregory R. Dillon, Thomas S. Foley, Arch K. Jacobson (all of whom currently
are members of the Patriot REIT Board), James D. Carreker (who currently is
the President of Wyndham and a member of the Wyndham Board), Philip J. Ward
(who currently serves as a director of Wyndham) and Harlan R. Crow (a designee
of CF Securities who currently serves as a director of Wyndham). If, prior to
the Effective Time, any of the persons mentioned above declines to or becomes
unable to serve as a director of Patriot REIT, then Patriot REIT, Wyndham or
CF Securities, as the case may be, will designate another person to serve as a
director of Patriot REIT, so long as such designee is reasonably acceptable to
the other parties. Within six months following the Effective Time, the Patriot
REIT designees have the right to propose another person to serve on the
Patriot REIT Board. Assuming that person is reasonably acceptable to the
Wyndham designees on such Board, the number of directors of the Patriot REIT
Board will be increased to eleven and such person will be elected as a
director and will serve as a director until Patriot REIT's 1998 annual meeting
of stockholders or until his or her successor is duly elected and qualified.
Under the terms of the Merger Agreement, following the Merger, Mr. Nussbaum,
the current President and Chief Executive Officer of Patriot REIT and the
Chairman of the Patriot REIT Board, will continue as the Chief Executive
Officer of Patriot REIT and the Chairman of the Patriot REIT Board following
the Merger, Mr. Evans will serve as the President and Chief Operating Officer
of Patriot REIT, and Anne L. Raymond, the current Executive Vice President and
Chief Financial Officer of Wyndham, will serve as an Executive Vice President
and the Chief Financial Officer of Patriot REIT.
The age, positions and business experience of the directors and executive
officers of Patriot REIT that have been designated are set forth below. Like
the current Patriot REIT Board, following the Merger the Patriot REIT Board
will continue to be divided into three classes, with terms ending in 1998,
1999 and 2000 at the annual meetings of stockholders, respectively. Directors
elected at future stockholder meetings will hold office for three-year terms.
Certain of the existing and prospective stockholders of Patriot REIT have
agreed, pursuant to the Voting Agreements, to vote their shares of Patriot
REIT Common Stock in favor of nominees designated by the Board of Directors of
Patriot REIT, which nominees will be selected in accordance with the terms of
the Voting Agreements. See "Certain Related Agreements--Voting Agreements."
Executive officers will be elected annually by the Patriot REIT Board for
terms ending on the next annual meeting of the Patriot REIT Board.
<TABLE>
<CAPTION>
NAME POSITION WITH PATRIOT REIT AGE
---- ------------------------------------------------ ---
<S> <C> <C>
Paul A. Nussbaum........... Chairman of the Board of Directors and Chief 50
Executive Officer (term expires 1998)
William W. Evans III....... President, Chief Operating Officer and Director
(term expires 2000) 45
Anne L. Raymond............ Chief Financial Officer, Executive Vice 39
President and Treasurer
Harlan R. Crow............. Director (term expires 1998) 48
John C. Deterding.......... Director (term expires 1998) 65
Gregory R. Dillon.......... Director (term expires 1999) 74
Thomas S. Foley............ Director (term expires 1999) 68
John H. Daniels............ Director (term expires 1999) 70
Philip J. Ward............. Director (term expires 1999) 49
James D. Carreker.......... Director (term expires 2000) 50
Arch K. Jacobson........... Director (term expires 2000) 69
</TABLE>
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer of Old Patriot REIT in April 1995, continued in such
capacity for Patriot REIT following the Cal Jockey Merger, and will
239
<PAGE>
continue in such capacity for Patriot REIT following the Merger. Mr. Nussbaum
founded the Patriot American group of companies ("Patriot American") in 1991
and has been its Chief Executive Officer since its inception. Prior to his
association with Patriot American, Mr. Nussbaum practiced real estate and
corporate law in New York for 20 years, the last 12 years of which as chairman
of the real estate department of Schulte Roth & Zabel. He currently serves as
a member of the Dallas Symphony and is a member of the Urban Land Institute,
the American College of Real Estate Lawyers and the Advisory Board of the Real
Estate Center of the Wharton School of Business, University of Pennsylvania.
Mr. Nussbaum is a member of the Board of Visitors of the Georgetown University
Law Center and an Overseer of Colby College, Waterville, Maine. He holds a
B.A. from the State University of New York at Buffalo and a J.D. from the
Georgetown University Law Center.
William W. Evans III began serving in the Office of the Chairman of Old
Patriot REIT in March 1997, continued in such capacity for Patriot REIT
following the Cal Jockey Merger, and became a director of Patriot REIT in July
1997. Mr. Evans will assume the positions of President and Chief Operating
Officer of Patriot REIT and will continue as a director of Patriot REIT
following the Merger. Previously, Mr. Evans was a Managing Director in
PaineWebber's Real Estate Group with responsibility for the origination and
structuring of principal transactions. He joined PaineWebber as a result of
the firm's acquisition of Kidder, Peabody and Co. Incorporated in December
1994. Prior to joining Kidder, Peabody in 1992, Mr. Evans was a First Vice
President and head of the Real Estate Financing Division of Swiss Bank
Corporation, responsible for all real estate activities of the U.S.
organization of the bank. Mr. Evans is a graduate of the University of
Virginia.
Anne L. Raymond will become Chief Financial Officer and an Executive Vice
President of Patriot REIT following the Merger. Ms. Raymond joined Wyndham in
1983 as Controller and served in that and other financial capacities through
September 1987. From September 1987 to July 1994, she served as Investment
Manager for Crow Family Holdings, where her responsibilities included managing
and overseeing Crow Family Holdings' interest in the Trammell Crow Company and
Wyndham. Upon the formation of the Crow Investment Trust in August 1994, Ms.
Raymond was named Director--Capital Markets thereof and had responsibility for
developing and maintaining investment relationships with real estate capital
sources. In March 1995, Ms. Raymond officially rejoined Wyndham as Executive
Vice President and Chief Financial Officer, and was elected a director of
Wyndham in April 1996. Ms. Raymond holds a B.S. in Business Administration
from the University of Missouri.
Harlan R. Crow will become a director of Patriot REIT following the Merger.
Mr. Crow became a director of Wyndham in April 1996. Mr. Crow is the chief
executive officer of Crow Family Holdings, an investment company managing
investments in a variety of real estate related and other businesses, a
position he has held since 1986. Prior to 1986, Mr. Crow was a Regional
Partner in the office building unit of Trammell Crow Company, a commercial
real estate management and development company. Mr. Crow is a former member of
the Board of Directors of Texas Commerce Bancshares, a banking institution. In
any given year within the past six years, Mr. Crow has indirectly owned
interests in over 1,000 partnerships (or affiliates of partnerships) or
corporations. In the past six years, Mr. Crow was a general partner, officer
or director in approximately 95 partnerships or corporations, or affiliates of
such partnerships or corporations, that filed for protection under federal
bankruptcy laws. In addition, in the past six years, Mr. Crow was a general
partner, executive officer or director in approximately 15 partnerships or
corporations, or affiliates of such partnerships or corporations, that were
placed in receivership. Mr. Crow has been a Director of Homegate Hospitality,
Inc. since October 1996. Mr. Crow holds a Bachelor of Business Administration
from the University of Texas at Austin.
John C. Deterding became a director of Old Patriot REIT in September 1995,
continued in such capacity for Patriot REIT following the Cal Jockey Merger,
and will continue in such capacity for Patriot REIT following the Merger. He
has been the owner of Deterding Associates, a real estate consulting company,
since June 1993. From 1975 until June 1993, he served as Senior Vice President
and General Manager of the Commercial Real Estate division of General Electric
Capital Corporation ("GECC"). In directing the real estate activities at GECC,
he was responsible for both domestic and international lending activities,
portfolio purchases, joint ventures, asset management and real estate
securitization. From November 1989 to June 1993, Mr. Deterding served as
Chairman of the General Electric Real Estate Investment Company, a privately
held REIT. He served as Director of GECC Financial Corporation from 1986 to
1993. Mr. Deterding is also a former member and trustee of the Urban Land
Institute. He holds a B.S. from the University of Illinois.
240
<PAGE>
Gregory R. Dillon became a director of Old Patriot REIT in September 1995,
continued in such capacity for Patriot REIT following the Cal Jockey Merger,
and will continue in such capacity for Patriot REIT following the Merger. He
has been Vice Chairman Emeritus of Hilton Hotels Corporation ("Hilton") since
1993. He has been a director of Hilton since 1977 and was elected Vice
Chairman in 1990. Mr. Dillon served as an Executive Vice President of Hilton
from 1980 until 1993. Mr. Dillon was also Executive Vice President of Hilton's
franchise company, Hilton Inns, Inc., from 1971 to 1986. He is a director of
the Conrad N. Hilton Foundation and is a founding member of the American Hotel
Association's Industry Real Estate Financing Advisory Council and the National
Association of Corporate Real Estate Executives (NACORE). In addition to his
undergraduate degree, Mr. Dillon holds an L.L.B. from DePaul University.
Thomas S. Foley became a director of Old Patriot REIT in September 1995,
continued in such capacity for Patriot REIT following the Cal Jockey Merger,
and will continue in such capacity for Patriot REIT following the Merger. He
has been a partner in the Washington, D.C. office of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. since January 1995. From 1965 through 1994, Mr. Foley
served 15 terms in the U.S. House of Representatives. Mr. Foley was Speaker of
the U.S. House of Representatives from June 1989 through December 1994. Mr.
Foley currently is a director of the H.J. Heinz Company, and he serves on the
Global Advisory Board of Coopers & Lybrand L.L.P., the Board of Advisors for
the Center for Strategic and International Studies and the Board of Directors
for the Center for National Policy. Mr. Foley holds a B.A. and L.L.B. from the
University of Washington.
John H. Daniels became a director of Old Patriot REIT in September 1995,
continued in such capacity for Patriot REIT following the Cal Jockey Merger,
and will continue in such capacity for Patriot REIT following the Merger. He
has served as President of The Daniels Group Inc., a real estate development
and management company, since 1984. Mr. Daniels has also served as Vice
Chairman of Patriot American since its inception in 1991. Prior to forming The
Daniels Group Inc., Mr. Daniels served as Chairman and Chief Executive Officer
of Cadillac Fairview Corporation, a publicly held real estate development and
management company. Mr. Daniels has more than 40 years of real estate
development and management experience. Mr. Daniels is also a director of
Cineplex-Odeon Corporation, Consolidated H.C.I. Corporation, Samoth Capital
Corporation and Anitech Enterprises Inc. Mr. Daniels holds a B.S. in
Architecture from the University of Toronto.
Philip J. Ward will become a director of Patriot REIT following the Merger.
He has served as a director of Wyndham since June 1996. Mr. Ward is the Senior
Managing Director in charge of the Real Estate Investment Division of CIGNA
Investments, Inc., a division of CIGNA Corporation, a position he has held
since December 1985. Mr. Ward joined Connecticut General's Mortgage and Real
Estate Department (a predecessor of CIGNA) in 1971 and became an officer in
1987. Since joining CIGNA, Mr. Ward has held real estate investment
assignments in Mortgage and Real Estate Production and in Portfolio
Management. Mr. Ward is also a director of the Simon DeBartolo Group, Inc., of
Indianapolis, Indiana, and a director of the Connecticut Housing Investment
Fund. Mr. Ward holds a Bachelor of Arts from Amherst College.
James D. Carreker will become a director of Patriot REIT following the
Merger. He has served as President and Chief Executive Officer of Wyndham
since May 1988 and as a director of Wyndham since February 1996. He also
served as Chief Executive Officer of Trammell Crow Company, a national real
estate company, from August 1994 to December 1995. Prior to 1988, Mr. Carreker
served as President of Burdine's, the Miami based division of Federated
Department Stores. Mr. Carreker holds a B.S. and Master of Business
Administration from Oklahoma State University.
Arch K. Jacobson became a director of Old Patriot REIT in September 1995,
continued in such capacity for Patriot REIT following the Cal Jockey Merger,
and will continue in such capacity for Patriot REIT following the Merger. He
has served as President of Jacobson-Berger Capital Group, Inc., a commercial
mortgage banking firm, since 1993. From 1986 to 1993, Mr. Jacobson was
Chairman of Union Pacific Realty Co., a real estate management and development
company. He served in various capacities with the Real Estate Department of
The Prudential Insurance Company from 1955 to 1980 and was President and Chief
Executive Officer of the Prudential Development Company (a subsidiary of the
Prudential Insurance Company) from 1982 to 1986. Mr.
241
<PAGE>
Jacobson currently serves as a director of Walden Residential Properties,
Inc., a publicly traded multifamily apartment REIT. He was formerly a director
of La Quinta Limited Partners, and chaired the committee of independent
directors that negotiated the tender offer for and purchase of that company in
1994. Mr. Jacobson holds a B.S. from Texas A&M University.
WYNDHAM INTERNATIONAL
Immediately following the Effective Time, the number of directors of Wyndham
International will be fixed at ten. At such time, the directors of Wyndham
International will be Paul A. Nussbaum, Karim Alibhai, Arch K. Jacobson,
Sherwood M. Weiser, Russ Lyon, Jr., Burton C. Einspruch, Leonard Boxer (all of
whom currently are members of the Patriot Operating Company Board), James D.
Carreker, James C. Leslie (who currently serves as a director of Wyndham) and
Susan T. Groenteman (a designee of CF Securities who currently serves as a
director of Wyndham). If, prior to the Effective Time, any of the persons
mentioned above declines to or becomes unable to serve as a director of
Wyndham International, then Patriot Operating Company, Wyndham or CF
Securities, as the case may be, will designate another person to serve as a
director of Wyndham International, so long as such designee is reasonably
acceptable to the other party. Within six months following the Effective Time,
the Wyndham designees have the right to propose another person to serve on the
Wyndham International Board. Assuming that person is reasonably acceptable to
the Patriot Operating Company designees on such Board, the number of directors
of the Wyndham International Board will be increased to eleven and such person
will be elected as a director and will serve as a director until Wyndham
International's 1998 annual meeting of stockholders or until his successor is
duly elected and qualified. Under the terms of the Merger Agreement, James D.
Carreker, the current President and Chief Executive Officer of Wyndham, will
become the Chief Executive Officer of Wyndham International and the Chairman
of the Wyndham International Board, Rex E. Stewart, the current Chief
Financial Officer of Patriot REIT, will serve as an Executive Vice President
and the Chief Financial Officer of Wyndham International, and Thomas W.
Lattin, the current President and Chief Operating Officer of Patriot Operating
Company, will serve as an Executive Vice President of Wyndham International.
242
<PAGE>
The age, positions and business experience of the directors and executive
officers of Wyndham International that have been designated are set forth
below. Like the Patriot Operating Company Board, following the Merger, the
Wyndham International Board will continue to be divided into three classes,
with terms ending in 1998, 1999 and 2000 at the annual meetings of
stockholders, respectively. Directors elected at future stockholder meetings
will hold office for three-year terms. Certain of the existing and prospective
stockholders of Wyndham International have agreed, pursuant to the Voting
Agreements, to vote their shares of Wyndham International Common Stock in
favor of nominees designated by the Board of Directors of Wyndham
International, which nominees will be selected in accordance with the terms of
the Voting Agreements. See "Certain Related Agreements--Voting Agreements."
Executive officers will be elected annually by the Wyndham International Board
for terms ending on the next annual meeting of the Wyndham International
Board.
<TABLE>
<CAPTION>
NAME POSITION WITH WYNDHAM INTERNATIONAL AGE
- ---- ----------------------------------- ---
<S> <C> <C>
James D. Carreker......... Chairman of the Board of Directors and Chief 50
Executive Officer (term expires 1998)
Karim Alibhai............. President, Chief Operating Officer and Director 33
(term expires 2000)
Rex E. Stewart............ Chief Financial Officer, Executive Vice 49
President and Treasurer
Leslie V. Bentley......... Executive Vice President 46
Thomas W. Lattin.......... Executive Vice President 52
Paul Novak................ Executive Vice President--Acquisitions and 51
Development
Stanley M. Koonce, Jr..... Executive Vice President--Marketing and 49
Strategic Planning
Russ Lyon, Jr............. Director (term expires 1998) 67
Sherwood M. Weiser........ Director (term expires 1998) 66
Burton C. Einspruch....... Director (term expires 1999) 62
Arch K. Jacobson.......... Director (term expires 1999) 69
Leonard Boxer............. Director (term expires 1999) 58
Susan T. Groenteman....... Director (term expires 1999) 43
Paul A. Nussbaum.......... Director (term expires 2000) 50
James C. Leslie........... Director (term expires 2000) 42
</TABLE>
James D. Carreker will become Chairman of the Board of Directors and Chief
Executive Officer for Wyndham International following the Merger. For
biographical information on Mr. Carreker, see "Management of Patriot REIT and
Wyndham International--Patriot REIT."
Karim Alibhai became a director of Patriot Operating Company and the
President and Chief Operating Officer of Patriot Operating Company on October
1, 1997 in connection with the GAH Acquisition and will continue in such
capacities for Wyndham International following the Merger. For the last 11
years, Mr. Alibhai has been a principal of the Gencom Group, an affiliated
group of companies that acquired, developed, renovated, leased and managed
hotel properties in the United States and Canada through Gencom American
Hospitality. Most recently, Mr. Alibhai was the President and Chief Executive
Officer of the Gencom Group. Gencom's investment portfolio consisted of more
than 50 owned, leased and managed hotels, representing in excess of 13,000
guest rooms in the United States and Canada. He holds a B.A. from Rice
University.
Rex E. Stewart became Executive Vice President and Chief Financial Officer
of Old Patriot REIT in April 1995 and has served as Chief Financial Officer
and Treasurer for Patriot REIT and Patriot Operating Company since the Cal
Jockey Merger. He will continue as the Chief Financial Officer and will become
an Executive Vice President for Wyndham International following the Merger.
From 1993 until joining Old Patriot REIT, he served as Chief Financial Officer
and Treasurer of Metro Joint Venture, an independent hotel management company
based in Dallas, Texas, which currently manages the Holiday Inn Select, North
Dallas and the Embassy Suites, Hunt Valley. He served in the same capacities
for Metro Hotels, Inc. from 1986 until 1993. Previously, Mr. Stewart was the
Chief Financial Officer of Lincoln Hotel Corporation, which owned and operated
a chain of upscale and luxury hotels across the United States. Prior to his
employment with Lincoln Hotel Corporation, Mr. Stewart was an audit manager
with Arthur Andersen & Co. in Dallas, Texas. He holds a B.B.A. from Texas A&M
University and an M.B.A. from the University of Southern California. He is a
certified public accountant.
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Leslie V. Bentley will become Executive Vice President for Wyndham
International following the Merger. He has been employed by Wyndham since
March 1985, has served as Executive Vice President and Wyndham Garden Division
President since May 1990 and was elected a director of Wyndham in January
1997. From January 1987 to June 1988, Mr. Bentley served as Regional Vice
President of Wyndham. From June 1988 to December 1988, Mr. Bentley served as
Vice President of Operations of Wyndham, and from December 1988 to May 1990,
he served as Senior Vice President of Operations of Wyndham. Prior to joining
Wyndham, Mr. Bentley was employed by Marriott Hotels for eight years. Mr.
Bentley holds a B.S. in Hotel and Restaurant Administration from Pennsylvania
State University.
Thomas W. Lattin will become an Executive Vice President for Wyndham
International following the Merger. He became President and Chief Operating
Officer of Old Patriot REIT in April 1995 and continued in such capacity for
Patriot Operating Company following the Cal Jockey Merger. He has more than 25
years of experience in the hotel industry as an executive and consultant. From
1976 through 1983, Mr. Lattin served as President of the Mariner Corporation,
a hotel development and management company based in Houston, Texas. In 1984,
he founded Great West Hotels, a hotel management and consulting company, and
served as President and Chief Executive Officer through 1987. From 1987
through 1994, he served as the National Partner of the hospitality industry
consulting practice of Laventhol & Horwath and subsequently as a partner in
the national hospitality consulting group of Coopers & Lybrand L.L.P. In 1994,
he joined the Hospitality Group of Kidder, Peabody & Co. Incorporated as a
Senior Vice President and later served as a Senior Vice President with
PaineWebber, following PaineWebber's acquisition of certain assets of Kidder,
Peabody & Co. Mr. Lattin holds a B.S. and M.S. in Hotel Management from the
Cornell School of Hotel Administration. He is a certified public accountant.
Paul Novak was named Executive Vice President--Acquisitions and Development
of Patriot Operating Company in June 1997 and will continue in such capacity
with Wyndham International following the Merger. From 1994 through June 1997,
Mr. Novak was President and Chief Executive Officer of Bedrock Partners, a
private investment group established in 1994 to acquire hotel properties and
convert them to Wyndham Hotels or Wyndham Garden Hotels. From 1992 through
1994, Mr. Novak was a principal in his own consulting firm where he directed
real estate development, marketing and acquisition assignments from numerous
clients. Prior thereto, he was with Marriott Corporation, where from 1981
until 1992, he served as a senior vice president of development and was
responsible for developing more than 400 properties. Before joining Marriott,
Mr. Novak served as director of real estate for La Quinta Motor Inns of San
Antonio, Texas and had worked previously for Holiday Inns, Inc. Accommodation
Services, Inc. and Pannell Kerr Forster & Company. Mr. Novak is a member of
the Urban Land Institute, The National Realty Committee and the Travel and
Tourism Research Association (TTRA). He received a B.A. from Michigan State
University.
Stanley M. Koonce, Jr. will become Executive Vice President--Marketing and
Strategic Planning for Wyndham International following the Merger. He has
served as Executive Vice President--Marketing, Planning and Technical Services
of Wyndham since October 1994, was elected a director of Wyndham in January
1997 and served as Senior Vice President of Sales and Marketing of Wyndham
from October 1989 to October 1994. Mr. Koonce served as President of CUC
Travel Services, a division of CUC International, in Stanford, Connecticut
from 1986 to 1989, as Vice President of the Marketing Department with American
Express from 1979 to 1986 and as a Director of Finance and Planning for
American Airlines from 1976 to 1979. Mr. Koonce holds a B.S. in Mathematics
and an MBA from the University of North Carolina.
Russ Lyon, Jr. became a director of Patriot Operating Company in July 1997
in connection with the Cal Jockey Merger and will continue in such capacity
with Wyndham International following the Merger. He is currently a managing
general partner of Western Realty L.P., a shopping center development and
management concern, where he has served since 1970. Mr. Lyon was previously a
managing general partner of Carefree Resorts L.P., a resort development and
management firm, and Carefree Resorts Corp. from 1983 and 1992, respectively,
until both were acquired by Patriot American Hospitality, Inc. in January
1997.
Sherwood M. Weiser became a director of Patriot Operating Company on October
1, 1997 in connection with the GAH Acquisition and will continue in such
capacity with Wyndham International following the Merger. Currently, Mr.
Weiser is the Chairman and Chief Executive Officer of Carnival Hotels &
Casinos ("CHC"), a
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hotel and gaming management and development firm. In 1970, Mr. Weiser founded
the Company formerly known as The Continental Companies ("T.C.C."). CHC was a
successor to T.C.C. In September 1997, CHCI, the parent corporation of CHC,
entered into a merger agreement with Patriot REIT and Patriot Operating
Company pursuant to which the hospitality-related businesses of CHCI will
merge with and into Patriot Operating Company. Mr. Weiser is a director of
Carnival Corporation, United National Bank and Winsloew Furniture Group. He is
a graduate of the Ohio State University School of Business and holds a J.D.
from the Case Western Reserve University School of Law.
Burton C. Einspruch became a director of Patriot Operating Company in July
1997 in connection with the Cal Jockey Merger and will continue in such
capacity for Wyndham International following the Merger. He has been a
physician and medical consultant with his own practice since 1966. He has also
been the Medical Director of First Southwest Corp., a national brokerage firm
since 1991. Dr. Einspruch also serves as a director for the Dallas National
Bank. Dr. Einspruch holds a B.A. from Southern Methodist University, a Sc. B.
from the Southern Methodist University and a M.D. from Southwestern Medical
School.
Arch K. Jacobson will continue to serve as a director of Wyndham
International following the Merger. For biographical information on Mr.
Jacobson, see "Management of Patriot REIT and Wyndham International--Patriot
REIT."
Leonard Boxer will become a director of Wyndham International following the
Merger. He became a director of Old Patriot REIT in September 1995, and
continued in such capacity for Patriot REIT following the Cal Jockey Merger.
He has been a partner and chairman of the real estate department of the law
firm of Stroock & Stroock & Lavan in New York, New York since 1987.
Previously, he was a founder and managing partner and head of the real estate
department of Olnick Boxer Blumberg Lane & Troy, a real estate law firm in New
York. Mr. Boxer is a member of the Board of Trustees of New York University
Law School. He is a member of the New York Regional Cabinet of the United
States Holocaust Memorial Museum. Mr. Boxer holds a B.A. and an L.L.B. from
New York University.
Susan T. Groenteman will become a director of Wyndham International
following the Merger. She has served as a director of Wyndham since April
1996. Ms. Groenteman is the Director (chief operating officer) of Crow Family
Holdings, an investment company managing investments in a variety of real
estate related businesses, along with other industries, a position she has
held since 1988. From 1986 through 1988, Ms. Groenteman was Controller of Crow
Family Holdings. Ms. Groenteman served in a variety of positions for Crow
Hotel Company, a predecessor to Wyndham. In any given year within the past
five years, Ms. Groenteman has served as an executive officer or director in
over 1,000 partnerships (or affiliates of partnerships) or corporations. In
the past five years, Ms. Groenteman has served as an executive officer or
director of approximately 95 partnerships or corporations, or for affiliates
of such entities, that filed for protection under federal bankruptcy laws. In
addition, in the past five years, Ms. Groenteman served as an executive
officer or director in approximately 15 partnerships or corporations, or
affiliates of such partnerships or corporations, that were placed in
receivership. Ms. Groenteman holds a Bachelor of Business Administration from
the University of Texas at Arlington.
Paul A. Nussbaum became Chairman of the Board of Directors and Chief
Executive Officer for Patriot Operating Company following the Cal Jockey
Merger, and will continue as a director of Wyndham International following the
Merger. For biographical information on Mr. Nussbaum, see "Management of
Patriot REIT and Wyndham International-- Patriot REIT."
James C. Leslie will become a director of Wyndham International following
the Merger. He has served as a director of Wyndham since June 1996. Mr. Leslie
has served as President and Chief Operating Officer of The Staubach Company
since March 1996. Mr. Leslie served as Chief Financial Officer of The Staubach
Company from 1982 to 1992 and President-Staubach Financial Services from
January 1992 to March 1996. Mr. Leslie is also President and a board member of
Wolverine Holding Company and serves on the boards of Columbus Realty Trust,
FM Properties, Inc., Forum Retirement Partners, L.P., and The Staubach
Company, as well as other private corporations and charitable organizations.
Mr. Leslie is a certified public account. Mr. Leslie holds a B.S. from the
University of Nebraska and an MBA from the University of Michigan.
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DESCRIPTION OF CAPITAL STOCK
The rights of stockholders of Patriot REIT and Wyndham International will be
governed by the Restated Charters and the Restated Bylaws. The rights of such
stockholders will also be governed by the terms of the Amended Pairing
Agreement and the Cooperation Agreement. The following discussion summarizes
certain of the key terms of the Restated Charters, the Restated Bylaws, the
Amended Pairing Agreement and the Cooperation Agreement. This summary does not
purport to be complete and is subject to and qualified in its entirety by
reference to: the Pairing Agreement Amendment and the Restated Charters, which
are attached to this Joint Proxy Statement/Prospectus as Annexes E and F, and
G, respectively; the Cooperation Agreement and the Restated Bylaws, which are
incorporated by reference as exhibits to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part; and the relevant provisions
of the DGCL. Stockholders of Patriot REIT, Patriot Operating Company and
Wyndham should carefully read the Restated Charters and the Restated Bylaws,
the Pairing Agreement Amendment and the Cooperation Agreement.
Under the Restated Charters, each of Patriot REIT and Wyndham International
will have the authority to issue 650,000,000 shares of Patriot REIT Common
Stock and Wyndham International Common Stock, respectively, 100,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), and
750,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"). Upon consummation of the Merger, shares of Series A Preferred Stock
will be issued to CF Securities pursuant to the Stock Purchase Agreement and
such shares will constitute all of the shares of Series A Preferred Stock
outstanding immediately following consummation of the Merger. No shares of any
other class or series of Preferred Stock will be outstanding immediately
following consummation of the Merger. Assuming no Wyndham stockholder would
receive Paired Shares in excess of the Ownership Limit or the Look-Through
Ownership Limit, as the case may be, upon consummation of the Merger, no
shares of Excess Stock will be outstanding immediately following consummation
of the Merger.
Issuances of shares of Patriot REIT Common Stock, Wyndham International
Common Stock and other equity securities of Patriot REIT and Wyndham
International will be subject to the terms and conditions of the Amended
Pairing Agreement and the Cooperation Agreement.
COMMON STOCK
The holders of Paired Shares will be entitled to one vote per share on all
matters voted on by stockholders, including elections of directors. Except as
otherwise required by law, by the terms of the Series A Preferred Stock (see
discussion below), by the Restated Charters with respect to Excess Stock or
provided in any resolution adopted by either of the Patriot REIT Board or the
Wyndham International Board with respect to any series of Preferred Stock, the
holders of Paired Shares of Patriot REIT Common Stock and Wyndham
International Common Stock exclusively possess all voting power. The Restated
Charters do not provide for cumulative voting in the election of directors.
Subject to the terms of the Series A Preferred Stock and any preferential
rights of any outstanding series of Preferred Stock and the rights of holders
of Excess Stock, the holders of Paired Shares are entitled to such dividends
as may be declared from time to time by the Patriot REIT Board and the Wyndham
International Board from funds available for such purpose, and upon
liquidation will be entitled to receive pro rata all assets of Patriot REIT
and Wyndham International available for distribution to such holders. All
Paired Shares issued pursuant to the Merger and the Related Transactions will
be fully paid and nonassessable, and the holders thereof will not have
preemptive rights.
PREFERRED STOCK
Each of the Patriot REIT Board and the Wyndham International Board is
authorized to provide for the issuance of shares of Preferred Stock in one or
more series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof. Because each of the
Patriot REIT Board and the Wyndham International Board has the power to
establish the preferences and rights of each class or series of Preferred
Stock, each such Board of Directors
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may, subject to the terms of the Cooperation Agreement (see discussion below),
afford the holders of any series or class of Preferred Stock preferences,
powers and rights, voting or otherwise, senior to the rights of holders of
shares of Patriot REIT Common Stock or Wyndham International Common Stock,
respectively. The issuance of shares of Preferred Stock could have the effect
of delaying or preventing a change in control of Patriot REIT or Wyndham
International.
PATRIOT REIT SERIES A PREFERRED STOCK
The Series A Preferred Stock will be issued to CF Securities in accordance
with the provisions of the Certificate of Designation for the Series A
Preferred Stock (the "Certificate of Designation"). The Series A Preferred
Stock will be a series designated out of the Preferred Stock of Patriot REIT.
The following is a summary of certain provisions of the Series A Preferred
Stock. This summary does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of the Restated Charter of
Patriot REIT and the Certificate of Designation, copies of which have been
filed as exhibits to the Registration Statement of which this Joint Proxy
Statement/Prospectus forms a part.
Pursuant to the Certificate of Designation, the Patriot REIT Board will be
authorized to issue up to 13,585,857 shares of Series A Preferred Stock,
provided that Patriot REIT will only issue such number of shares of Series A
Preferred Stock as is permitted by the terms of the Stock Purchase Agreement.
Each share of Series A Preferred Stock will be entitled to dividends when, as
and if declared and paid on the Paired Shares in an amount equal to the sum of
the dividends paid on the Paired Shares. Dividends on the Series A Preferred
Stock will rank pari passu with dividends on the Paired Shares.
The Series A Preferred Stock will be entitled to one vote per share, voting
together as a class with the shares of Patriot REIT Common Stock, on any
matter submitted for a vote of the stockholders of Patriot REIT. The Series A
Preferred Stock will be convertible at any time into Paired Shares on a one-
for-one basis by the holders thereof, subject to the Excess Share Provisions
set forth in the Restated Charters. In addition, the Series A Preferred Stock
will be mandatorily convertible at any time and in any amount upon notice by
Patriot REIT, provided that the amount so converted will not cause a violation
of the Excess Share Provisions set forth in the Restated Charters.
Upon a liquidation, dissolution or winding up of Patriot REIT, the holders
of the Series A Preferred Stock will be entitled to receive, on a per share
basis, (i) the Wyndham International Dissolution Preference and (ii) a ratable
share, together with the holders of Patriot REIT Common Stock, in the assets
of Patriot REIT available for distribution on the Patriot REIT Common Stock.
As used in the Certificate of Designation, "Wyndham International Dissolution
Preference" means, as applicable, either (A) if Wyndham International has
previously been or is simultaneously liquidated, dissolved or wound up, a
preference equal to the amount per share of Wyndham International Common Stock
which was or will be received by the holders of Wyndham International Common
Stock upon the liquidation, dissolution or winding up of Wyndham International
or (B) if Wyndham International has not previously been or is not
simultaneously liquidated, dissolved or wound up, a preference per share equal
to an amount determined by an independent investment banker selected by the
Patriot REIT Board (with the agreement of the majority holder of the Series A
Preferred Stock, if there is one at such time) to be equal to the then current
value of a share of Wyndham International Common Stock, without regard to the
paired share structure of the Patriot Companies. If Wyndham International has
been previously liquidated, dissolved or wound up, then any Wyndham
International Dissolution Preference will "accrue interest" at the applicable
federal rate from the date the liquidating distributions were made on the
Wyndham International Common Stock unless and until paid.
PATRIOT OPERATING COMPANY SERIES A PREFERRED STOCK AND SERIES B PREFERRED
STOCK
By operation of the CHCI Merger, each issued and outstanding CHCI Share and
certain stock option rights will be converted into the right to receive shares
of Operating Company Series A Preferred Stock and shares of Operating Company
Series B Preferred Stock. Generally, the aggregate number of shares of
Operating Company Preferred Stock that each shareholder shall have the right
to receive pursuant to the CHCI Merger shall consist
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of, to the extent possible, an equal number of shares of Operating Company
Series A Preferred Stock and shares of Operating Company Series B Preferred
Stock.
Generally, each share of Operating Company Series A Preferred Stock may be
redeemed, at the option of the holder, for one Paired Share at any time
following the first anniversary of the closing of the CHCI Merger. Each share
of Operating Company Series B Preferred Stock may be redeemed, at the option
of the holder, for one Paired Share; however, such redemption is generally
restricted until the fifth anniversary of the closing of the CHCI Merger. The
value of a Paired Share at the time of redemption (the "Redemption Value")
may, at Patriot Operating Company's option, be paid in cash. Further, if
Patriot Operating Company fails to comply with certain restrictions, the
Operating Company Preferred Stock may be redeemed, at the option of the
holder, for cash or, at Patriot Operating Company's option, Paired Shares at
the Redemption Value plus a premium. The dividend rate on the shares of
Operating Company Preferred Stock is equivalent to the dividend rate on the
Paired Shares. Dividends on Operating Company Series B Preferred Stock are
subject to increase during the five years subsequent to the closing of the
CHCI Merger if the shares are transferred by the original holder. If the
dividends on the Operating Company Preferred Stock are not paid when due,
dividends will instead accrue at the rate of 115% per annum on a compounded
basis. Dividends on the Operating Company Preferred Stock will be preferential
to dividends on the Paired Shares. The Operating Company Preferred Stock is
redeemable at Patriot Operating Company's option at the Redemption Value, plus
a premium in the case of the original holders thereof and certain permitted
transferees. Except as required by law, the Operating Company Preferred Stock
will be non-voting.
Upon a liquidation, dissolution, or winding up of Patriot Operating Company,
the holders of Operating Company Preferred Stock generally will be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of Patriot Operating Company to the holders of Patriot Operating
Company Common Stock, any stock not on a parity with the Operating Company
Preferred Stock for liquidation purposes or any stock ranking junior to the
Operating Company Common Stock, an amount equal to the greater of (i) $23.25,
plus all accrued but unpaid dividends, for each share of Operating Company
Preferred Stock then held by them, and (ii) the amount that a holder of a
share of Operating Company Preferred Stock would have received if such holder
held the number of shares of Patriot Operating Company Common Stock equal to
the number of such shares of Operating Company Preferred Stock.
EXCESS STOCK
Upon the violation of certain transfer restrictions contained in the
Restated Charters, shares of any class or series of Equity Stock of Patriot
REIT and Wyndham International will automatically be converted into an equal
number of shares of Excess Stock of Patriot REIT or Wyndham International, as
the case may be, and transferred
to a trust (a "Trust"). Such shares of Excess Stock held in trust shall remain
outstanding shares of stock of Patriot REIT and Wyndham International and
shall be held by the trustee of the Trust (the "Trustee") for the benefit of a
charitable beneficiary (a "Beneficiary"). The Trustee and the Beneficiary
shall be designated pursuant to the terms of the Pairing Agreement. Each share
of Excess Stock shall entitle the holder to the number of votes the holder
would have if such share of Excess Stock was a share of Equity Stock of the
same class or series from which such Excess Stock was converted, on all
matters submitted to a vote at any meeting of stockholders. The Trustee, as
record holder of the Excess Stock, shall be entitled to vote all shares of
Excess Stock. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to timing and amount) as may be declared by
the Patriot REIT Board or the Wyndham International Board, as the case may be,
as shares of the class or series of Equity Stock from which such Excess Stock
was converted. The Trustee of the Trust, as record holder of the shares of the
Excess Stock, shall be entitled to receive all dividends and distributions and
shall hold such dividends and distributions in trust for the benefit of the
Beneficiary of the Trust. Upon the sale of the shares of Excess Stock to
either a permitted transferee under the Restated Charters (the "Permitted
Transferee") or to Patriot REIT and Wyndham International, such shares of
Excess Stock will be automatically converted into an equal number of shares of
Equity Stock of the same class or series from which such Excess Stock was
converted. Pursuant to the Amended Pairing Agreement, the conversion of Equity
Stock of Patriot REIT or Wyndham International into Excess Stock, or the
conversion of Excess Stock of Patriot REIT or Wyndham International into
Equity Stock, requires conversion of the corresponding share of Patriot REIT
or Wyndham International, as the case may be.
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THE AMENDED PAIRING AGREEMENT
Under the Amended Pairing Agreement, shares of Patriot REIT Common Stock and
Wyndham International Common Stock shall not be transferrable or transferred
on the books of such company unless a simultaneous transfer is made by the
same transferor to the same transferee of an equal number of shares of common
stock of the other company. Neither Patriot REIT nor Wyndham International may
issue shares of Patriot REIT Common Stock or Wyndham International Common
Stock, as the case may be, unless provision has been made for the simultaneous
issuance or transfer to the same person of the same number of shares of common
stock of the other company and for the pairing of such shares. Each
certificate issued for Patriot REIT Common Stock or Wyndham International
Common Stock must be issued "back-to-back" with a certificate evidencing the
same number of shares of common stock of the other company. Each certificate
must bear a conspicuous legend on its face referring to the restrictions on
ownership and transfer under the Amended Pairing Agreement. The Amended
Pairing Agreement provides that each of Patriot REIT and Wyndham International
may issue shares of capital stock of any class or series (other than Patriot
REIT Common Stock and Wyndham International Common Stock), irrespective of
whether such shares are convertible into shares of Patriot REIT Common Stock
and Wyndham International Common Stock, without making provision for the
simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of capital stock of the other company and
for the pairing of such shares.
In addition, pursuant to the Amended Pairing Agreement, neither Patriot REIT
nor Wyndham International may declare a stock dividend consisting in whole or
in part of Patriot REIT Common Stock or Wyndham International Common Stock,
issue any rights or warrants to purchase any shares of Patriot REIT Common
Stock or Wyndham International Common Stock or subdivide, combine or otherwise
reclassify the shares of Patriot REIT Common Stock or Wyndham International
Common Stock unless the other company simultaneously takes the same or
equivalent action.
Pursuant to the Amended Pairing Agreement, as desired from time to time, but
no less than once each calendar year, Patriot REIT and Wyndham International
are required to jointly arrange for the determination of the fair market value
of the Wyndham International Common Stock outstanding on such valuation date.
Such valuation may be used from time to time by Patriot REIT and Wyndham
International to change the allocation between the companies of the net
proceeds from any Issuance of Paired Equity. The Amended Pairing Agreement may
be terminated by the Board of Directors of either Patriot REIT or Wyndham
International upon 30 days written notice to the other company that such
termination has been approved by the affirmative vote of the holders of a
majority of the outstanding shares of common stock of the company seeking to
terminate the agreement. In the event the Amended Pairing Agreement is
terminated, Patriot REIT and Wyndham International have agreed to cooperate to
effect a separation of the paired shares of both companies so as to permit the
separate issuance and transfer thereof.
THE COOPERATION AGREEMENT
General. Although a paired share structure may result in stockholders of the
paired companies realizing certain economic benefits not realizable by
stockholders of companies not having a paired share structure, each paired
company is a separate corporate entity with separate Boards of Directors and
different management teams. Accordingly, the interests of the Board of
Directors and management of the paired companies may conflict and such
conflicts may possibly rise to disputes between the companies. Prior to the
Cal Jockey Merger, Cal Jockey and Bay Meadows experienced certain
disagreements and disputes, some of which resulted in litigation between the
companies. Patriot REIT and Patriot Operating Company believe that these
disagreements and disputes compromised the ability of Cal Jockey and Bay
Meadows to operate the companies in a manner designed to maximize the
potential economic benefits that could be realized for stockholders of the
paired companies. Patriot REIT and Patriot Operating Company believe that to
increase the likelihood that the stockholders of the two companies may fully
realize the economic benefits of the paired share structure, it is in the best
interests of the companies and their respective stockholders that the risk of
potential conflicts between the two companies be minimized. Accordingly,
Patriot REIT and Patriot Operating Company have agreed to enter into the
Cooperation Agreement.
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Under the terms of the Cooperation Agreement, Patriot REIT and Patriot
Operating Company will be obligated to cooperate to the fullest extent
possible in the conduct of their respective operations and to take all
necessary action to preserve the paired share structure and to maximize the
economic and tax advantages associated therewith. One of the primary
objectives of the Cooperation Agreement is to set forth the understanding of
the Patriot Companies that Patriot REIT shall have the sole right and power to
authorize, effect and control issuances of paired equity (including securities
convertible into paired equity) of the two companies. The Cooperation
Agreement will provide for a number of corporate governance mechanisms
designed to accomplish this objective and the other objectives set forth
therein. These mechanisms include (i) the establishment of a cooperation
committee (the "Cooperation Committee") that will normally consider and
propose the agenda listing the matters to be considered at any joint meeting
of the Patriot REIT Board and the Patriot Operating Company Board, (ii) the
establishment of corporate matters categories and procedures for the
consideration and reconsideration of matters brought before the Patriot REIT
Board and the Patriot Operating Company Board, (iii) the establishment of a
hotel acquisitions committee (the "Hotel Acquisitions Committee") that will
analyze, evaluate and consider potential acquisitions by the Patriot Companies
of hotel properties and related assets, (iv) provisions that will govern the
sole authority of Patriot REIT to authorize, effect and control issuances of
paired equity (including securities convertible into paired equity) of the two
companies, and (v) the establishment of an unpaired equity committee (the
"Unpaired Equity Committee") that will have the sole authority to authorize
and approve issuances of unpaired equity by Patriot Operating Company.
Following the consummation of the Merger, Patriot REIT and Wyndham
International will continue to have the rights and obligations of Patriot REIT
and Patriot Operating Company, respectively, under the Cooperation Agreement.
Cooperation Committee. Pursuant to the Cooperation Agreement, the Patriot
Companies will establish, as promptly as practicable following the closing of
the Merger, the Cooperation Committee consisting of (i) the Chairman of the
Patriot REIT Board (who shall be the Chairman of the Cooperation Committee),
(ii) the Chairman of the Wyndham International Board, (iii) a designee of the
Patriot REIT Board reasonably acceptable to Wyndham International (who shall
serve at the pleasure of the Patriot REIT Board and may be removed and
replaced at any time), and (iv) the President of Wyndham International.
Immediately following consummation of the Merger, the Cooperation Committee
will consist of Paul A. Nussbaum (who will be Chairman of the Patriot REIT
Board and Chief Executive Officer of Patriot REIT), James D. Carreker (who
will be Chairman of the Wyndham International Board and Chief Executive
Officer of Wyndham International), William W. Evans III (who will be a
director of Patriot REIT) and Karim Alibhai (who will be President of Wyndham
International). The Cooperation Committee will normally consider and propose
the agenda listing the matters to be considered at any joint meeting of the
Boards of Directors of the companies.
Corporate Matters Categories. Pursuant to the Cooperation Agreement, all
matters to be considered by the Patriot REIT Board or the Patriot Operating
Company Board and all matters related thereto, except (i) a change in Patriot
REIT's line of business and (ii) issuances of paired equity and issuances of
unpaired equity, will be classified into the most appropriate of the following
three categories: (x) routine corporate governance matters, such as approval
and retention of independent accountants, the fixing of employee compensation
and other like matters (each, a "Category 1 Matter"); (y) all other matters,
other than a Change of Control and the removal of the Chairman or Chief
Executive Officer of Patriot REIT or Patriot Operating Company and, after the
third anniversary of the Merger, all other matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer of
Patriot REIT or Patriot Operating Company (each, a "Category 2 Matter"); and
(z) the removal of the Chairman or Chief Executive Officer of either Patriot
REIT or Patriot Operating Company and, until the third anniversary of the
Merger, any proposed action by Patriot REIT or Patriot Operating Company, as
the case may be, that would result in a Change of Control (each, a "Category 3
Matter").
The term "Change in Control" as defined in the Cooperation Agreement will
mean the occurrence, with respect to either Patriot REIT or Patriot Operating
Company, of any one of the following events (Patriot REIT and Patriot
Operating Company being referred to below, as the case may be, as the
"Company"): (i) any "person," as such term is used in Sections 13(d) and 14(d)
of the Exchange Act (other than the Company or any trustee fiduciary or other
person or entity holding securities under any employee benefit plan or trust
of the
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Company, together with all "affiliates" and "associates" (as such terms are
defined in Rule 12b-2 under the Exchange Act) of such person, shall become the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing 50% or
more of either (A) the combined voting power of the Company's then outstanding
securities having the right to vote generally in an election of the Company's
Board of Directors (the "Voting Securities") or (B) the then outstanding
Paired Shares (in either such case other than as a result of an acquisition of
securities directly from the Company); or (ii) (A) any consolidation or merger
of the Company where the stockholders of the Company, immediately prior to the
consolidation or merger, would not, immediately after the consolidation or
merger, beneficially own (as such term is defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, securities representing in the
aggregate 50% or more of the voting securities of the corporation issuing cash
or securities in the consolidation or merger (or of its ultimate parent
corporation, if any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any party
as a single plan) of all or substantially all of the assets of the Company or
(C) any plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, as defined in the Cooperation Agreement, a
"Change of Control" will not be deemed to have occurred for purposes of the
foregoing clause (i) solely as the result of an acquisition of securities by
the Company which, by reducing the number of Paired Shares or other voting
securities outstanding, increases (x) the proportionate number of Paired
Shares beneficially owned by any person to 50% or more of the Paired Shares
then outstanding or (y) the proportionate voting power represented by the
voting securities beneficially owned by any person to 50% or more of the
combined voting power of all then outstanding voting securities; provided,
however, that if any person referred to in clause (x) or (y) of this sentence
shall thereafter become the beneficial owner of any additional Paired Shares
or other voting securities (other than pursuant to a stock split, stock
dividend, or similar transaction) and whose ownership immediately thereafter
shall equal or exceed the amounts set forth in clauses (x) or (y), then a
"Change of Control" shall be deemed to have occurred for purposes of the
foregoing clause (i).
At any meeting of the Patriot REIT Board or the Patriot Operating Company
Board (whether or not held jointly), each of Patriot REIT and Patriot
Operating Company, as the case may be, may (the Board submitting any matter
being referred to herein as the "Proposing Board") (i) submit a Category 1
Matter to the consideration and vote of its Board, irrespective of any
consideration or vote by the other Board, (ii) submit a Category 2 Matter to
the consideration and vote of its Board, and (iii) submit a Category 3 Matter
to the consideration and vote of its Board, with such matter requiring a 66
2/3% vote of its Board for approval.
If the Proposing Board at any such meeting that is not held jointly (the
"Proposing Board Meeting") shall have approved any Category 2 Matter or
Category 3 Matter, such Proposing Board shall promptly provide notice (the
"Proposing Board Notice") to the other company pursuant to the terms of the
Cooperation Agreement of the occurrence of such meeting and the Category 2
Matters or Category 3 Matters approved at such meeting. The Cooperation
Committee shall convene promptly (in any event, within ten (10) business days)
following the Proposing Board Meeting to consider the actions taken by the
Proposing Board. If the Cooperation Committee votes to approve the action
taken by the Proposing Board with respect to any such matter, then the action
authorized by the Proposing Board may be implemented without consideration of
such matter by the other Board. If the Cooperation Committee does not approve
the action taken by the Proposing Board, the other company's Board (the
"Responding Board") may then hold a meeting within fifteen (15) business days
following receipt by such other company of the Proposing Board Notice to
consider and vote upon the Category 2 Matters or Category 3 Matters approved
by the Proposing Board and during such period the action authorized by the
Proposing Board may not be implemented. In the event that the Responding Board
approves at such a meeting the action taken by the Proposing Board or the
Responding Board does not hold a meeting within fifteen (15) business days
following receipt of the Proposing Board Notice, the action authorized by the
Proposing Board may thereafter be implemented.
In the event the Responding Board holds a meeting within fifteen (15)
business days following receipt of the Proposing Board Notice but does not
approve the action authorized by the Proposing Board, the action authorized by
the Proposing Board may not be implemented. In such an event, the Cooperation
Committee will convene promptly following the meeting of the Responding Board
to consider the contrary positions of the
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Proposing Board and the Responding Board and recommend a resolution of such
contrary positions in connection with the reconsideration process described
below (the "Reconsideration Process"). The Boards will then follow the
Reconsideration Process.
At any joint meeting of the Patriot REIT Board and the Patriot Operating
Company Board, in the event that the Proposing Board approves a Category 2
Matter or Category 3 Matter but the other Board does not, the action
authorized by the Proposing Board may not be implemented. The Cooperation
Committee shall convene immediately following the joint meeting (unless a
quorum of the Cooperation Committee is not present, in which case the
Cooperation Committee shall convene as soon as practicable thereafter) to
consider the votes of the Boards taken at such meeting. The Boards will then
follow the Reconsideration Process described below.
Reconsideration Process. Following any meeting of the Cooperation Committee
as described above, any Proposing Board may reconsider a Category 2 Matter at
any subsequent meeting of such Board and, if the Proposing Board approves such
matter by a majority vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter regardless of the position of
the other Board. Following any meeting of the Cooperation Committee as
described above, the Proposing Board may reconsider a Category 3 Matter at any
subsequent meeting of such Board and, if the Proposing Board approves such
matter by a 66 2/3% vote at such subsequent meeting, then the Proposing Board
may take the action contemplated by such matter (but only if the other Board
approves such matter by a majority vote in the case of a Change in Control).
Change in Patriot REIT's Line of Business. Until the third anniversary of
the Merger, any change in Patriot REIT's line of business shall require a 66
2/3% vote of the Patriot REIT Board and a majority vote of Patriot Operating
Company Board for approval.
Hotel Acquisitions Committee. Pursuant to the Cooperation Agreement, Patriot
REIT and Patriot Operating Company will establish, as promptly as practicable
following the closing of the Merger, and thereafter continue in effect as
provided in the Cooperation Agreement, a Hotel Acquisitions Committee to
analyze, evaluate and consider potential acquisitions by the Patriot Companies
of hotel properties and related assets (which properties and related assets
may consist of a portfolio of hotel properties and related assets, and which
may be acquired in any form, such as by merger, asset acquisition or
otherwise) ("Hotel Acquisitions"). The Hotel Acquisitions Committee will have
the sole power and authority to authorize Patriot REIT or Patriot Operating
Company, as the case may be, to enter into a binding agreement with respect to
Hotel Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not exceeding (with
respect to each Hotel Acquisition or such series of Hotel Acquisitions as are
reasonably likely to be considered an integrated transaction) 5% of the total
combined market capitalization of the Patriot Companies computed as of the
last business day of the month immediately preceding the month during which
such Hotel Acquisition is to be authorized and based on the average closing
sale price of a Paired Share over the five (5) trading days immediately
preceding such business day. The Hotel Acquisitions Committee shall consist of
six members as follows: (i) the Chairman of the Patriot REIT Board, (ii) the
Chairman of the Wyndham International Board, (iii) the President of Patriot
REIT, (iv) the President of Wyndham International, (v) a non-employee director
of the Patriot REIT Board selected by the Chairman of the Patriot REIT Board
and reasonably satisfactory to the Wyndham International Board, and (vi) a
non-employee director of the Wyndham International Board selected by the
Chairman of the Wyndham International Board and reasonably satisfactory to the
Patriot REIT Board. Notwithstanding the foregoing, in the event that Paul A.
Nussbaum fails to serve or continue to serve on the Hotel Acquisitions
Committee for any reason, the Patriot REIT Board shall have the right to
select an individual to replace Mr. Nussbaum, provided that such individual
shall be reasonably satisfactory to James D. Carreker (so long as he is Chief
Executive Officer of Wyndham International), Harlan R. Crow (so long as CF
Securities continues to meet the Crow Ownership Threshold (as defined below))
and the Wyndham designees to the Wyndham International Board under the Merger
Agreement (a "Wyndham-OPCO Designee") other than Mr. Carreker (with respect to
each such designee, so long as such designee continues to serve on the Board
of Directors of either Patriot REIT or Wyndham International). Further, in the
event that Mr. Carreker fails to serve or continue to serve on the Hotel
Acquisitions Committee for any reason, Mr. Crow (so long as CF Securities
continues to meet the Crow Ownership Threshold) and the remaining Wyndham-OPCO
Designees (with respect
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to each such designee, so long as such designee continues to serve on the
Board of Directors of either Patriot REIT or Wyndham International) shall have
the right to select an individual to replace Mr. Carreker (and in the event
that neither Mr. Crow nor any of the Wyndham-OPCO Designees are then serving
on the Board of Directors of Wyndham International, then the Wyndham
International Board shall have the right to select an individual to replace
Mr. Carreker), provided that such individual shall be reasonably satisfactory
to the Patriot REIT Board. Notwithstanding the foregoing, the Hotel
Acquisitions Committee shall no longer have the power and authority described
herein on and after the third anniversary of the Merger.
The term "Crow Ownership Threshold" as defined in the Cooperation Agreement
generally will mean the beneficial ownership of at least five percent (5%) of
the lesser of (x) the sum of (i) the number of then outstanding Paired Shares
and (ii) the number of then outstanding shares of unpaired Preferred Stock of
Patriot REIT, or (y) the sum of (i) the number of Paired Shares outstanding
immediately after the Merger and (ii) the number of shares of unpaired
Preferred Stock of Patriot REIT outstanding immediately after the Merger.
Authority to Issue Paired Equity. The Cooperation Agreement will provide
that, from and after the date of the Cooperation Agreement until the date (the
"Termination Date") which is twelve (12) months after the date on which the
Pairing Agreement is no longer in effect, the Patriot REIT Board will have the
sole right to authorize and to effect, or to cause Patriot Operating Company
and the Patriot Operating Company Board to effect, an Issuance of Paired
Equity (as defined below) and to take or cause to be taken any and all action
in contemplation of, or in connection with, an Issuance of Paired Equity, and
Patriot Operating Company's certificate of incorporation and bylaws shall so
provide. In connection therewith, the Patriot REIT Board also will have the
authority to cause Patriot Operating Company to comply with the procedures set
forth in the Cooperation Agreement.
The term "Issuance of Paired Equity" as defined in the Cooperation Agreement
will mean a private or public offering, sale, issuance or delivery of, or
commitment or agreement to commit to offer, sell, issue or deliver (whether
through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or any
other debt or equity securities of Patriot Operating Company (including,
without limitation, indebtedness having the right to vote, indebtedness
convertible into any equity of any class or any other securities) or limited
partnership interests or units of Patriot Operating Company Partnership), or
equity equivalents of either (including, without limitation, stock
appreciation rights), if it is contemplated that such stock or other
securities, or any securities underlying such stock or other securities, would
or could be paired with shares of Patriot REIT Common Stock or any other
securities of Patriot REIT, or, in the case of limited partnership interests
or units of the Patriot Operating Company Partnership, it is contemplated that
such interests or units would be economically (or otherwise) "paired" (even if
not pursuant to the Amended Pairing Agreement) with the limited partnership
interests or units of the Patriot REIT Partnership. Issuance of Paired Equity
also will mean (A) the related issuance by Patriot REIT or the Patriot REIT
Partnership of the securities of Patriot REIT or the Patriot REIT Partnership
which are paired with the securities of Patriot Operating Company or the
Patriot Operating Company Partnership and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split, combination
of shares, exchange of shares for other shares of the companies, repurchase or
redemption of shares, change in corporate structure or the like in which the
outstanding Paired Shares would be increased, decreased, changed into or
exchanged for a different number or kind of Paired Shares or other paired
securities.
Pursuant to the Cooperation Agreement, Patriot REIT will be entitled to
designate from time to time one or more officers of Patriot REIT to serve as a
"Paired Equity Officer/Director." The Patriot REIT Board will have the
authority to appoint any such Paired Equity Officer/Director to the positions
of vice president and assistant secretary of Patriot Operating Company. Any
Paired Equity Officer/Director may resign or be removed by Patriot REIT at any
time and, at any time thereafter, Patriot REIT may designate a new Paired
Equity Officer/Director. Any Paired Equity Officer/Director will have the
express authority to do any and all acts and things related to any Issuance of
Paired Equity, including, without limitation, the execution and delivery in
the name and on behalf of Patriot Operating Company of any and all documents,
certificates (including stock certificates) and other instruments necessary or
appropriate in connection with the issuance of any shares of Patriot Operating
Company Common Stock pursuant to an Issuance of Paired Equity, the engagement
of investment bankers,
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accountants, attorneys and other professionals, and the incurrence of any and
all other transaction costs related thereto.
The Cooperation Agreement will provide that Patriot REIT shall have, and
Patriot Operating Company shall at all times and in all circumstances maintain
and support the position that Patriot REIT has, the sole right and power to
authorize and effect, or to cause Patriot Operating Company and the Patriot
Operating Company Board to effect, the Issuance of Paired Equity and Patriot
Operating Company further agreed not to assert otherwise in any forum,
proceeding, action or communication or take any other action which is
inconsistent with its obligations under the Cooperation Agreement.
Under the terms of the Cooperation Agreement, Patriot Operating Company will
expressly release any and all claims, causes of action, rights, defenses and
arguments that any Issuance of Paired Equity approved by Patriot REIT in any
way violates or infringes any rights that Patriot Operating Company or its
past, present or future officers, directors, employees, shareholders or
affiliates may have, including, without limitation, that any Issuance of
Paired Equity approved by Patriot REIT in any way breaches, violates or
infringes any fiduciary duties, duties of one shareholder to another,
partnership duties, joint venturer duties, or any other duties or obligations
that may exist or exist in the future; provided, that nothing contained in the
Cooperation Agreement will be, or be asserted to be, an admission that any
such duties exist. Further, Patriot Operating Company will expressly disclaim,
and will agree not to assert that, any such duties or obligations exist in any
way that would interfere with the sole rights of Patriot REIT with respect to
the Issuance of Paired Equity.
The Cooperation Agreement will require that Patriot REIT shall give notice
(an "Issuance Notice") to Patriot Operating Company as promptly as practicable
of each determination by Patriot REIT to engage in an Issuance of Paired
Equity. Such Issuance Notice shall include the proposed material terms of such
issuance, to the extent determined by Patriot REIT, including whether such
issuance is proposed to be pursuant to a public or private offering, the
amount of Paired Shares proposed to be issued, and the manner of determining
the offering price and other terms thereof.
Upon receipt of an Issuance Notice, Patriot Operating Company and the
Patriot Operating Company Board shall promptly cooperate with Patriot REIT in
every way to effect such Issuance of Paired Equity pursuant to the terms and
schedule thereof as established by Patriot REIT, including, without
limitation, in certain respects as prescribed in the Cooperation Agreement.
The Cooperation Agreement will provide that upon any Issuance of Paired
Equity the net proceeds therefrom shall be allocated ninety-five percent (95%)
to Patriot REIT and five percent (5%) to Patriot Operating Company, unless and
until a different allocation is agreed to by mutual consent of Patriot REIT
and Patriot Operating Company in accordance with the Pairing Agreement, as
amended from time to time.
From time to time, Patriot Operating Company may request that Patriot REIT
effect an Issuance of Paired Equity in connection with employee benefit plans,
other forms of incentive compensation and other arrangements or commitments of
Patriot Operating Company. To the extent that Patriot REIT approves in writing
any such plan, arrangement or commitment, Patriot REIT agreed that it will
either (A) issue the shares of Patriot REIT Common Stock which form a part of
the Paired Shares when the Paired Shares are required to be issued pursuant to
the terms of any such plan, arrangement or commitment or (B) indemnify Patriot
Operating Company to the fullest extent permitted under applicable law from
and against any and all damages, as specified in the Cooperation Agreement, of
Patriot Operating Company which arise out of any failure by Patriot REIT to
issue such shares of Patriot REIT Common Stock.
Authority to Issue Unpaired Equity. From and after the date of the
Cooperation Agreement until the Termination Date, each of Patriot REIT and
Patriot Operating Company will have the right to engage in an Issuance of
Unpaired Equity (as defined below) in accordance with and pursuant to the
procedures contained in the Cooperation Agreement, and to take any and all
action in contemplation of, or in connection with, an Issuance of Unpaired
Equity.
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The term "Issuance of Unpaired Equity," as defined in the Cooperation
Agreement, will mean, in the case of Patriot Operating Company, a public or
private offering, sale, issuance, delivery or commitment or agreement to
commit to offer, sell, issue or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to purchase
or otherwise) any or all securities described in the definition of "Issuance
of Paired Equity" if it is contemplated that such stock or other securities,
and any securities underlying such stock or other securities, would not or
could not be paired with shares of Patriot REIT Common Stock or any other
securities of Patriot REIT or, in the case of limited partnership interests or
units of the Patriot Operating Company Partnership, it is contemplated that
such interests or units would not or could not economically (or otherwise) be
"paired" with the limited partnership interests or units of the Patriot REIT
Partnership. "Issuance of Unpaired Equity" means, in the case of Patriot REIT,
a public or private offering, sale, issuance or delivery of, or commitment or
agreement to commit to offer, sell, issue or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions, rights
to purchase or otherwise), any stock of any class or any other debt or equity
securities of Patriot REIT (including, without limitation, indebtedness having
the right to vote and indebtedness convertible into any equity of any class or
any other securities) or limited partnership interests or units of the Patriot
REIT Partnership, or equity equivalents of either (including, without
limitation, stock appreciation rights), if it is contemplated that such stock
or other securities, and any securities underlying such stock or other
securities, would not or could not be paired with shares of Patriot Operating
Company Common Stock or any other securities of Patriot Operating Company or,
in the case of limited partnership interests or units of the Patriot REIT
Partnership, it is contemplated that such interests or units would not or
could not be economically (or otherwise) "paired" (even if not pursuant to the
Amended Pairing Agreement) with the limited partnership interests or units of
the Patriot Operating Company Partnership.
Patriot Operating Company will have the right to engage in an Issuance of
Unpaired Equity upon the affirmative vote of a majority of the members of the
Unpaired Equity Committee. Patriot REIT will have the right to engage in an
Issuance of Unpaired Equity upon the affirmative vote of a majority of the
members of the Patriot REIT Board.
Pursuant to the Cooperation Agreement, the "Unpaired Equity Committee" will
consist of (i) the Chairman of the Patriot REIT Board, (ii) the Chairman of
the Patriot Operating Company Board, (iii) two designees of Patriot REIT from
either of the Patriot REIT Board or the Patriot Operating Company Board and
(iv) one designee of Patriot Operating Company from either of the Patriot REIT
Board or the Patriot Operating Company Board. Upon consummation of the Merger,
the members of the Unpaired Equity Committee will consist of (i) Paul A.
Nussbaum until such time as he shall no longer serve as Chairman of the
Patriot REIT Board and, after such time, the Chairman of the Patriot REIT
Board, (ii) James D. Carreker until such time as he shall no longer serve as
Chairman of the Patriot Operating Company Board and, after such time, the
Chairman of the Patriot Operating Company Board, (iii) two designees of
Patriot REIT from either the Patriot REIT Board or the Patriot Operating
Company Board and (iv) one designee of Patriot Operating Company from either
the Patriot REIT Board or the Patriot Operating Company Board.
Holders of Unpaired Equity. Under the terms of the Cooperation Agreement,
whenever, from time to time, there shall be outstanding any class of equity
securities of Patriot REIT, Patriot Operating Company or any of their
respective subsidiaries, which securities are not paired with corresponding
securities of the other company or its subsidiaries, but are convertible or
exchangeable into or for Paired Shares (including, without limitation, any
shares of unpaired Preferred Stock of Patriot REIT issued to CF Securities
after the date of the Cooperation Agreement) (the "Unpaired Shares"), then, so
long as any such Unpaired Shares were issued in accordance with the terms of
the Cooperation Agreement, Patriot REIT and Patriot Operating Company will
issue shares of Patriot REIT Common Stock or the shares of Patriot Operating
Company Common Stock, as the case may be, underlying such Unpaired Shares in
accordance with the terms thereof. The covenants of Patriot REIT and Patriot
Operating Company set forth in the Cooperation Agreement will be made for the
benefit of the holders of such Unpaired Shares and such holders will be
express third-party beneficiaries thereof. Any shares of unpaired
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Preferred Stock of Patriot REIT issued to CF Securities pursuant to the Stock
Purchase Agreement will be deemed to have been issued in accordance with the
terms of the Cooperation Agreement.
Indemnification by Patriot REIT. Under the Cooperation Agreement, Patriot
REIT will be obligated to indemnify and hold harmless all directors and
officers of Patriot Operating Company from and against all losses, claims,
damages, liabilities and expenses ("Damages") to which any such directors or
officers may become subject insofar as such Damages arise out of an Issuance
of Paired Equity or an Issuance of Unpaired Equity prior to the termination of
the Cooperation Agreement to the same extent, and on the same terms and
conditions (including, without limitation, provision for advancement of
expenses and contribution) that Patriot REIT indemnifies its own directors and
officers with respect to such matters, provided that in no event shall a
director or officer of Patriot Operating Company receive greater
indemnification for Damages than would a director or officer, as the case may
be, of Patriot REIT in a like circumstance.
Removal of Directors. If at any time any director of Patriot Operating
Company shall interfere or fail to cooperate fully with any Issuance of Paired
Equity, such director will be deemed to be no longer acting within the scope
of his authority with respect to the management of the affairs of Patriot
Operating Company and to have failed to remain qualified as a director. In
such event, such director shall automatically cease to be a director. The
determination of whether any director of Patriot Operating Company has
interfered or failed to cooperate fully with any Issuance of Paired Equity
will be made by the Patriot REIT Board and notice of any such determination
shall be given by Patriot REIT to Patriot Operating Company within 10 days
after the date of such determination. Notwithstanding when such determination
and notice shall be made and given, any such director shall be deemed to have
ceased to be a director at the time of any interference or failure to
cooperate; provided, however, that for purposes of the indemnification
provided under the Cooperation Agreement and any other right to
indemnification to which such director would otherwise be entitled, such
director shall be deemed to have been acting as a director until such time as
such determination and notice shall be made and given, and such director's
right to indemnification, if any, shall in no way be prejudiced solely by
reason of having acted as a director during the period from the time of such
interference or failure to cooperate until such determination and notice are
made and given.
Termination. Unless earlier terminated at any time by the mutual consent of
Patriot REIT and Patriot Operating Company, the Cooperation Agreement will
terminate on the Termination Date. In the event of any termination of the
Cooperation Agreement, neither Patriot REIT nor Patriot Operating Company (or
any of its directors, officers, employees or agents) will have any liability
or further obligation to any other party.
Amendment. The corporate governance provisions of the Cooperation Agreement,
including those related to the Cooperation Committee and the Hotel
Acquisitions Committee, and the provisions related to the Issuance of Paired
Equity and Issuance of Unpaired Equity, termination of directors of Patriot
Operating Company and termination of the Cooperation Agreement, may only be
waived, amended, supplemented or modified with the approval of a 66 2/3% vote
of each of the Patriot REIT Board and the Patriot Operating Company Board.
CERTAIN PROVISIONS OF THE RESTATED CHARTERS AND RESTATED BYLAWS
Restrictions on Ownership and Transfer
For Patriot REIT to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of capital
stock. Specifically, not more than 50% in value of Patriot REIT's outstanding
shares of capital stock may be owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities) during the
last half of a taxable year, and Patriot REIT must be beneficially owned by
100 or more persons during at least 335 days of a taxable year of twelve
months or during a proportionate part of a shorter taxable year. In addition,
Patriot REIT must meet certain requirements regarding the nature of its gross
income in order to qualify as a REIT. One such requirement is that at least
75% of Patriot REIT's gross income for each year must consist of rents from
real property and income from certain other real property investments. The
rents received by the Patriot REIT Partnership and its subsidiary partnerships
from
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the Lessees will not qualify as rents from real property if Patriot REIT owns,
actually or constructively, 10% or more of the ownership interests in any
Lessee within the meaning of Section 856(d)(2)(B) of the Code, the result of
which would be the loss of REIT status for Patriot REIT. See "Certain Federal
Income Tax Considerations--REIT Qualification."
In order to protect Patriot REIT against the risk of losing its status as a
REIT and to otherwise protect Patriot REIT from the consequences of a
concentration of ownership among its stockholders, the Restated Charters
provide, subject to certain exceptions, that no single person (which includes
a "group" of persons) (other than Look-Through Entities) may Beneficially Own
or Constructively Own (as those terms are defined below) in excess of 8.0% of
the outstanding shares of any class or series of Equity Stock of Patriot REIT
or Wyndham International, unless the Ownership Limitation is waived by the
Board of Directors of the relevant corporation in accordance with the Restated
Charters. Any transfer of Equity Stock of Patriot REIT or Wyndham
International that would (i) result in any person or entity owning, directly
or indirectly, shares of Equity Stock of Patriot REIT or Wyndham International
in excess of the Ownership Limit, unless the Ownership Limit is waived by the
Board of Directors of the relevant corporation in accordance with the Restated
Charters, (ii) result in the capital stock of Patriot REIT being beneficially
owned (within the meaning of Section 856(a)(5) of the Code) by fewer than 100
persons within the meaning of Section 856(a)(5) of the Code, (iii) result in
Patriot REIT being "closely held" within the meaning of Section 856(h) of the
Code or (iv) cause Patriot REIT to own, actually or constructively, 10% or
more of the ownership interests in a tenant of the real property of Patriot
REIT or a subsidiary of Patriot REIT within the meaning of section
856(d)(2)(B) of the Code, shall be void ab initio, and the intended transferee
will acquire no right or interest in such shares of Equity Stock. For purposes
of the Restated Charters, "Beneficial Ownership" means, with respect to any
individual or entity, ownership of shares of Equity Stock equal to the sum of
(i) the shares of Equity Stock directly or indirectly owned by such individual
or entity, (ii) the number of shares of Equity Stock treated as owned directly
or indirectly by such individual or entity through the application of the
constructive ownership rules of Section 544 of the Code, as modified by
Section 856(h)(1)(B) of the Code, and (iii) the number of shares of Equity
Stock which such individual or entity is deemed to beneficially own pursuant
to Rule 13d-3 under the Exchange Act. The Restated Charters provide that
pension plans described in Section 401(a) of the Code and mutual funds
registered under the Investment Company Act of 1940 are treated as Look-
Through Entities that are subject to a 9.8% "Look-Through Ownership Limit."
Pension plans and mutual funds are among the entities that are not treated as
holders of stock under the Five or Fewer Requirement and the beneficial owners
of such entities will be counted as holders for this purpose. For purposes of
computing the percentage of shares of any class or series of Equity Stock of
Patriot REIT or Wyndham International Beneficially Owned by any person or
entity, any shares of Equity Stock of Patriot REIT or Wyndham International
which are deemed to be Beneficially Owned by such person or entity pursuant to
Rule 13d-3 of the Exchange Act but which are not outstanding shall be deemed
to be outstanding. The terms "Beneficial Owner," "Beneficially Owns" and
"Beneficially Owned" shall have correlative meanings. Also for purposes of the
Restated Charters, "Constructive Ownership" means ownership of shares of
Equity Stock by an individual or entity who is or would be treated as a direct
or indirect owner of such shares of Equity Stock through the application of
Section 318 of the Code, as modified by Section 856(d)(5) of the Code. The
terms "Constructive Owner," "Constructively Owns" and "Constructively Owned"
shall have correlative meanings.
Upon the occurrence of a purported transfer of shares that would result in a
violation of any of the foregoing transfer restrictions, that number of shares
that violate the transfer restrictions shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust for the
benefit of the Beneficiary, effective on the Trading Day prior to the date of
the purported transfer of such shares, and the record holder of the shares of
Equity Stock that are converted into shares of Excess Stock (a "Prohibited
Owner") shall submit such number of shares of Equity Stock to Patriot REIT or
Wyndham International, as the case may be, for registration in the name of the
Trustee. In the case of Equity Stock that is paired, upon the conversion of a
share of Equity Stock into a share of Excess Stock, the corresponding paired
share of that same class or series of Equity Stock of the other company shall
simultaneously be converted into a share of Excess Stock; such shares of
Excess Stock shall be paired and shall be simultaneously transferred to a
Trust. Upon the occurrence of such a
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conversion of shares of any class or series of Equity Stock into an equal
number of shares of Excess Stock, such shares of Equity Stock shall be
automatically retired and canceled, without any action required by the Board
of Directors of either of Patriot REIT or Wyndham International, and shall
thereupon be restored to the status of authorized but unissued shares of the
particular class or series of Equity Stock from which such Excess Stock was
converted and may be reissued as that particular class or series of Equity
Stock.
Shares of Equity Stock that are converted into shares of Excess Stock and
transferred to a Trust shall be held in trust for the exclusive benefit of the
Beneficiary. Shares of Excess Stock will remain issued and outstanding shares
of stock. Each share of Excess Stock shall be entitled to the same dividends
and distributions (as to both timing and amount) as may be declared by the
Patriot REIT Board or the Wyndham International Board, as the case may be, as
shares of the class or series of Equity Stock from which such Excess Stock was
converted. The Trustee, as record holder of the shares of Excess Stock, shall
be entitled to receive all dividends and distributions and shall hold all such
dividends or distributions in trust for the benefit of the Beneficiary. The
Prohibited Owner with respect to such shares of Excess Stock shall repay to
the Trust the amount of any dividends or distributions received by it (i) that
are attributable to any shares of Equity Stock that have been converted into
shares of Excess Stock and (ii) the record date of which was on or after the
date that such shares were converted into shares of Excess Stock. Patriot REIT
and Wyndham International shall take all measures that they determine
reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock beneficially owned or constructively owned by the person who, but for
the restrictions on transfer, would constructively own or beneficially own the
shares of Excess Stock and, as soon as reasonably practicable following
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
In the event of any voluntary or involuntary liquidation of, or winding up
of, or any distribution of the assets of, Patriot REIT or Wyndham
International, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of Patriot REIT or Wyndham International, as the case may be, that is
available for distribution to the holders of such class or series of Equity
Stock. The Trust shall distribute to the Prohibited Owner the amounts received
upon such liquidation, dissolution, or winding up, or distribution; provided,
however, that the Prohibited Owner shall not be entitled to receive amounts in
excess of, in the case of a purported transfer in which the Prohibited Owner
gave value for shares of Equity Stock and which transfer resulted in the
conversion of the shares into shares of Excess Stock, the price per share, if
any, such Prohibited Owner paid for the shares of Equity Stock (which, in the
case of Equity Stock that is paired, shall equal the price paid per share
multiplied by the most recent Valuation Percentage) and, in the case of a non-
transfer event or transfer in which the Prohibited Owner did not give value
for such shares (e.g., if the shares were received through a gift or devise)
and which non-transfer event or transfer, as the case may be, resulted in the
conversion of the shares into shares of Excess Stock, the price per share
equal to the Market Price on the date of such non-transfer event or transfer.
Any remaining amount in such Trust shall be distributed to the Beneficiary.
Each share of Excess Stock shall entitle the holder to the number of votes
the holder would have, if such share of Excess Stock was a share of Equity
Stock of the same class or series from which such Excess Stock was converted,
on all matters submitted to a vote at any meeting of stockholders. The holders
of shares of Excess Stock converted from the same class or series of Equity
Stock shall vote together with the holders of such Equity Stock as a single
class on all such matters. The Trustee, as record holder of the shares of
Excess Stock, shall be entitled to vote all shares of Excess Stock. Any vote
taken by a Prohibited Owner prior to the discovery by Patriot REIT or Wyndham
International, as the case may be, that the shares of Equity Stock were
exchanged for shares of Excess Stock will be rescinded as void ab initio.
The Trustee shall have the exclusive and absolute right to designate one or
more Permitted Transferees of any and all shares of Excess Stock if Patriot
REIT or Wyndham International or both, in the case of Paired Shares, fail to
exercise its or their option with respect to such shares as described below;
provided, however, that (i) the Permitted Transferee so designated purchases
for valuable consideration (whether in a public or private
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sale) the shares of Excess Stock (which, in the case of Excess Stock that is
paired, shall equal the price paid per share multiplied by the most recent
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the
aforementioned transfer restrictions and without such acquisition resulting in
the exchange of such shares of Equity Stock so acquired for shares of Excess
Stock and the transfer of such shares of Excess Stock to a Trust. Upon the
designation by the Trustee of a Permitted Transferee, the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock of Patriot REIT or Wyndham International, as the case may be, acquired
by the Permitted Transferee. Upon such transfer of the shares of Excess Stock
to the Permitted Transferee, such shares of Excess Stock shall be
automatically converted into an equal number of shares of Equity Stock of the
same class and series from which such Excess Stock was converted. In the case
of Equity Stock that is paired, upon the conversion of a share of Excess Stock
into a share of Equity Stock of the same class or series from which such
Excess Stock was converted, the corresponding paired share of Excess Stock of
the other company shall simultaneously be converted into a share of Equity
Stock of the same class or series from which such Excess Stock was converted
and such shares of Equity Stock shall be paired. Upon the occurrence of such a
conversion of shares of Excess Stock into an equal number of shares of Equity
Stock, such shares of Excess Stock shall be automatically retired and
canceled, without any action required by the Patriot REIT Board or the Wyndham
International Board, and shall thereupon be restored to the status of
authorized but unissued shares of Excess Stock and may be reissued as such.
The Trustee shall (i) cause to be recorded on the stock transfer books of
Patriot REIT or Wyndham International or both, in the case of Paired Shares,
that the Permitted Transferee is the holder of record of such number of shares
of Equity Stock and (ii) distribute to the Beneficiary any and all amounts
held with respect to the shares of Excess Stock after making payment to the
Prohibited Owner. If the transfer of shares of Excess Stock to a purported
Permitted Transferee shall violate any of the aforementioned transfer
restrictions including, without limitation, the Ownership Limit, such transfer
shall be void ab initio as to that number of shares of Excess Stock that cause
the violation of any such restriction when such shares are converted into
shares of Equity Stock and the purported Permitted Transferee shall be deemed
to be a Prohibited Owner and shall acquire no rights in such shares of Excess
Stock. Such shares of Equity Stock shall be automatically re-converted into
Excess Stock and transferred to the Trust from which they were originally
sold. Such conversion and transfer to the Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the transfer to the
purported Permitted Transferee and the provisions of the Restated Charters
regarding compensation to a Prohibited Owner shall apply to such shares with
respect to any future transfer of such shares by the Trust.
A Prohibited Owner shall be entitled to receive from the Trustee following
the sale or other disposition of such shares of Excess Stock the lesser of (i)
(a) in the case of a purported transfer in which the Prohibited Owner gave
value for shares of Equity Stock and which transfer resulted in the conversion
of such shares into shares of Excess Stock, the price per share, if any, such
Prohibited Owner paid for the shares of Equity Stock (which, in the case of
Excess Stock that is paired, shall be determined based on the Valuation
Percentage) and (b) in the case of a non-transfer event or transfer in which
the Prohibited Owner did not give value for such shares (e.g., if the shares
were received through a gift or devise) and which non-transfer event or
transfer, as the case may be, resulted in the conversion of such shares into
shares of Excess Stock, the price per share equal to the Market Price on the
date of such non-transfer event or transfer and (ii) the price per share
(which, in the case of Excess Stock that is paired, shall be determined based
on the Valuation Percentage) received by the Trustee from the sale or other
disposition of such shares of Excess Stock. Any amounts received by the
Trustee in respect of such shares of Excess Stock and in excess of such
amounts to be paid the Prohibited Owner shall be distributed to the
Beneficiary.
Shares of Excess Stock shall be deemed to have been offered for sale by a
Trust to Patriot REIT or Wyndham International or both, in the case of Paired
Shares, or a designee of such company or companies, at a price per share equal
to the lesser of (i) the price per share (which, in the case of Excess Stock
that is paired, shall be determined based on the Valuation Percentage) in the
transaction that created such shares of Excess Stock (or, in the case of
devise, gift or non-transfer event, the Market Price at the time of such
devise, gift or non-transfer event) or (ii) the Market Price on the date
either company or both companies, in the case of Paired Shares, accept such
offer. Either company or both companies, in the case of Paired Shares, shall
have the right
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to accept such offer for a period of 90 days following the later of (a) the
date of the non-transfer event or purported transfer which results in such
shares of Excess Stock or (b) the date on which either company or both
companies, in the case of Paired Shares, determine in good faith that a
transfer or non-transfer event resulting in shares of Excess Stock has
previously occurred, if either company or both companies, in the case of
Paired Shares, do not receive a notice of such transfer or non-transfer event.
In the case of shares of Excess Stock that are paired, neither Patriot REIT
nor Wyndham International shall accept such an offer with respect to its
shares of Excess Stock without the agreement of the other company to accept
such offer with respect to the corresponding Paired Shares of its Excess
Stock.
"Market Price" on any date shall mean the average of the Closing Price for
the five consecutive Trading Days ending on such date. "Closing Price" on any
date shall mean the last sale price, regular way, or, in case no such sale
takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the NYSE or, if the shares of Equity Stock are not listed or
admitted to trading on the NYSE, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Equity Stock are
listed or admitted to trading or, if the shares of Equity Stock are not listed
or admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked prices
in the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or, if the shares of Equity Stock are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by
a professional market maker making a market in the shares of Equity Stock. In
the case of Equity Stock that is paired, "Market Price" shall mean the "Market
Price" for Paired Shares multiplied by a fraction (expressed as a percentage)
determined by dividing the value for such Equity Stock most recently
determined under the Pairing Agreement over the value of a paired share most
recently determined under the Pairing Agreement (the "Valuation Percentage").
"Trading Day" shall mean a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of York are authorized or obligated by law or
executive order to close.
Any person or entity that acquires or attempts to acquire shares of Equity
Stock in violation of the aforementioned transfer restrictions, or any person
or entity that owned shares of Equity Stock that were transferred to a Trust,
shall immediately give written notice to Patriot REIT or Wyndham International
or both, in the case of Paired Shares, of such event and shall provide such
other information as the appropriate company or both companies, as the case
may be, may request to determine the effect, if any, of such violation, on
Patriot REIT's status as a REIT.
Each person or entity that is an owner, actually or constructively, of
shares of Equity Stock and each person or entity that (including the
stockholder of record) is holding shares of Equity Stock for such an owner
shall provide to Patriot REIT or Wyndham International or both, in the case of
Paired Shares, a written statement or affidavit stating such information as
the appropriate company or both companies, as the case may be, may request to
determine Patriot REIT's status as a REIT and to ensure compliance with the
Ownership Limit or the Look-Through Ownership Limit, as the case may be. In
addition, every person or entity that owns of record, actually or
constructively, more than 5%, or such lower percentages as required pursuant
to regulations under the Code, of the outstanding shares of any class or
series of Equity Stock of Patriot REIT or Wyndham International shall, within
30 days after January 1 of each year, provide to Patriot REIT or Wyndham
International or both, in the case of Paired Shares, a written statement or
affidavit stating the name and address of such owner, the number of shares of
Equity Stock owned, actually or constructively, and a description of how such
shares are held.
All certificates representing shares of Equity Stock shall bear a legend
referring to the aforementioned transfer restrictions. The transfer
restrictions will continue to apply until the Patriot REIT Board determines
that it is no longer in the best interests of Patriot REIT to attempt to
qualify, or to continue to qualify, as a REIT.
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The restrictions on transfer contained in the Restated Charters could have
the effect of discouraging a takeover or other transaction in which holders of
some, or a majority, of shares of Equity Stock might receive a premium from
their shares of Equity Stock over the then prevailing Market Price or which
such holders might believe to be otherwise in their best interest.
Number of Directors; Removal; Filling Vacancies
The Restated Charters and the Restated Bylaws provide that the number of
directors of each of Patriot REIT and Wyndham International shall be fixed by
resolution duly adopted from time to time by the Board of Directors. Pursuant
to the terms of the Restated Charters, the directors are divided into three
classes with the term of office of one class expiring each year. As the term
of each class expires, directors in that class will be elected for a term of
three years and until their successors are duly elected and qualified.
The Restated Charters and the Restated Bylaws each provide that a director
may be removed, only for cause, by the vote of holders of at least 75% of the
outstanding shares of capital stock entitled to vote for the election of
directors at a special meeting of the stockholders called for the purpose of
removing such director. "Cause," with respect to the removal of any director,
is defined in the Restated Charters to mean only (i) conviction of a felony,
(ii) declaration of unsound mind by order of court, (iii) gross dereliction of
duty, (iv) commission of any action involving moral turpitude or (v)
commission of an action which constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit and a material injury to Patriot REIT or Wyndham
International, as the case may be. Any and all vacancies in the Board of
Directors, however occurring, shall be filled solely by the affirmative vote
of a majority of the remaining directors then in office, even if less than a
quorum of the Board of Directors. Any director so appointed shall hold office
for the remainder of the full term of the class of directors in which the
vacancy occurred and until such director's successor is duly elected and
qualified or, if earlier, such director's earlier resignation or removal.
The staggered board provision prevents stockholders of Patriot REIT and
Wyndham International from voting on the election of all directors at each
annual meeting. The existence of a staggered board, the fact that directors
may only be removed for cause and with a 75% vote and the fact that vacancies
in the Board of Directors shall be filled solely by the remaining directors
may have the effect of delaying or deferring a change in control of Patriot
REIT and Wyndham International or the removal of incumbent management.
Special Meetings of Stockholders
The Restated Bylaws provide that a special meeting of stockholders may only
be called by the Chairman of the Board of Directors or a majority of the Board
of Directors. Accordingly, stockholders of Patriot REIT and Wyndham
International will have no ability to call a special meeting of stockholders.
Limitation of Liability and Indemnification
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability (and the personal liability of a member of any duly
authorized and constituted committee of Patriot REIT or Wyndham International,
as the case may be, or of their respective Boards) to Patriot REIT or Wyndham
International, as the case may be, or their respective stockholders for breach
of fiduciary duty, except for liability (i) for any breach of the director's
duty of loyalty to Patriot REIT or Wyndham International, as the case may be,
or their respective stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed exclusive of
any indemnification right under any bylaw, vote of stockholders or
disinterested directors, or
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otherwise. The DGCL permits indemnification against expenses and certain other
liabilities arising out of legal actions brought or threatened against such
persons for their conduct on behalf of the corporation, provided that each
such person acted in good faith and in a manner that he or she reasonably
believed was in or not opposed to the corporation's best interests and in the
case of a criminal proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The DGCL does not allow indemnification of directors in
the case of an action by or in the right of the corporation (including
stockholder derivative suits) unless the directors successfully defend the
action or indemnification is ordered by the court. The Restated Bylaws provide
for indemnification to the fullest extent authorized by the DGCL and,
therefore, these statutory indemnification rights are available to the
directors, officers, employees and agents of Patriot REIT and Wyndham
International.
Amendment of Restated Charters and Restated Bylaws
The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion and certain provisions relating to the
Cooperation Agreement, the Restated Charter may be amended in the manner
prescribed by the DGCL, which requires the approval of the Board of Directors
and the approval of the stockholders by the affirmative vote of a majority of
the outstanding shares entitled to vote on such amendment.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Business Combinations
The DGCL requires that a merger, consolidation or any sale, lease or
exchange of all or substantially all of a corporation's property and assets
(collectively, "business combinations") be approved by a majority of the
outstanding shares of the corporation entitled to vote on such a matter, or a
greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage in a
business combination with an "interested stockholder" for a period of three
years following the time of the transaction in which the person became an
interested stockholder, unless (i) prior to such time the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii)
upon consummation of the transaction which resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual
or special meeting of stockholders, and not by written consent, by the vote of
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder. Subject to certain exceptions, the DGCL defines an "interested
stockholder" as a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
The Restated Bylaws provide that any corporate action shall be approved at a
stockholder meeting at which a quorum is present by the affirmative vote of a
majority of shares present in person or by proxy at such meeting and entitled
to vote on the matter, except where a larger vote is required by law, the
Restated Charters or the Restated Bylaws. The DGCL provides for a larger vote
with respect to business combinations and, therefore, a business combination
involving Patriot REIT or Wyndham International will require the approval of a
majority of the outstanding shares of Patriot REIT or Wyndham International,
as the case may be. In addition, the Restated Charters provide that a business
combination with a Related Person (as defined below) requires, with certain
exceptions, the approval of 66 2/3% of the outstanding shares of capital stock
of Patriot REIT or Wyndham
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International, as the case may be, which shall include the affirmative vote of
at least 50% of the outstanding shares of capital stock held by stockholders
other than the Related Person. However, such 66 2/3% voting requirement shall
not be applicable if the business combination was approved by the Board of
Directors prior to the acquisition by such Related Person of the beneficial
ownership of 5% or more of the outstanding shares of the capital stock of
Patriot REIT or Wyndham International, as the case may be. For purposes of the
Restated Charters, a "Related Person" is defined as any person or entity who
beneficially owns (as defined in Rule 13d-3 promulgated under the Exchange
Act) more than 5% of the outstanding shares of capital stock of Patriot REIT
or Patriot Operating Company, as the case may be, and any "affiliate" or
"associate" (as those terms are defined in Rule 12b-2 promulgated under the
Exchange Act).
The business combination provisions of the DGCL, together with the Related
Person provision of the Restated Charters, may have the effect of deterring
certain takeovers of Patriot REIT and Wyndham International.
Provisions Relating to the Cooperation Agreement
Consideration of Corporate Matters. The DGCL provides that the business and
affairs of a Delaware corporation shall be managed by or under the direction
of its Board of Directors, except as maybe otherwise provided in the DGCL or
in the corporation's certificate of incorporation. In addition, the DGCL
provides that if any such provision is made in the certificate of
incorporation, the powers and duties conferred or imposed upon the Board of
Directors by the DGCL shall be exercised or performed to such extent and by
such person or persons as shall be provided in the certificate of
incorporation. The Restated Charters provide that the property, affairs and
business of Patriot REIT and Wyndham International generally are managed under
the direction of the Patriot REIT Board and the Wyndham International Board.
Notwithstanding such provisions, the Restated Charters establish certain
procedures for the conduct of the business and affairs of Patriot REIT and
Wyndham International, as follows.
The Restated Charters provide that all matters to be considered by either
the Patriot REIT Board or the Wyndham International Board, and all matters
related thereto, except (i) a Change in Patriot's Line of Business and (ii)
Issuances of Paired Equity and Issuances of Unpaired Equity, shall be
classified into the most appropriate of the following three categories: (i)
routine corporate governance matters, such as approval and retention of
independent accountants, the fixing of employee compensation and other like
matters; (ii) all other matters, other than a Change of Control and the
removal of the Chairman or Chief Executive Officer of Patriot REIT or Wyndham
International and, after the third anniversary of the Merger, all other
matters (including a Change of Control); and (iii) any proposed action by
Patriot REIT or Wyndham International, as the case may be, that would result
in a Change of Control, until the third anniversary of the Merger. At any
meeting of the Patriot REIT Board or the Wyndham International Board (whether
or not held jointly), the Proposing Board may (i) submit a Category 1 Matter
to the consideration and vote of its Board, irrespective of any consideration
or vote by the other Board, (ii) submit a Category 2 Matter to the
consideration and vote of its Board, and (iii) submit a Category 3 Matter to
the consideration and vote of its Board, with such matter requiring a 66 2/3%
vote of its Board for approval until the third anniversary of the Merger,
after which time a Category 3 Matter shall become a Category 2 Matter. If the
Proposing Board at any Proposing Board Meeting that it is not held jointly
with the other company shall have approved any Category 2 Matter or Category 3
Matter, such Proposing Board shall promptly provide the Proposing Board Notice
to the other company in accordance with the terms of the Cooperation Agreement
of the occurrence of such meeting and the Category 2 Matters or Category 3
Matters approved at such meeting. The Cooperation Committee shall convene
promptly (in any event, within ten (10) business days) following the Proposing
Board Meeting to consider the actions taken by the Proposing Board. If the
Cooperation Committee votes to approve the action taken by the Proposing Board
with respect to any such matter, then the action authorized by the Proposing
Board may be implemented without consideration of such matter by the other
Board. If the Cooperation Committee does not approve the action taken by the
Proposing Board, the other company's Board (the "Responding Board") may then
hold a meeting within fifteen (15) business days following receipt by such
other company of the Proposing Board Notice to consider and vote upon the
Category 2 Matters or Category 3 Matters approved by the Proposing Board and
during such period the action
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authorized by the Proposing Board may not be implemented. In the event that
the Responding Board approves at such a meeting the action taken by the
Proposing Board or the Responding Board does not hold a meeting within fifteen
(15) business days following receipt of the Proposing Board Notice, the action
authorized by the Proposing Board may thereafter be implemented. In the event
the Responding Board holds a meeting within fifteen (15) business days
following receipt of the Proposing Board Notice but does not approve the
action authorized by the Proposing Board, the action authorized by the
Proposing Board may not be implemented. In such an event, the Cooperation
Committee will convene promptly following the meeting of the Responding Board
to consider the contrary positions of the Proposing Board and the Responding
Board and recommend a resolution of such contrary positions in connection with
the Reconsideration Process. The Boards will then follow the Reconsideration
Process.
The Restated Charters provide that at any joint meeting of the Boards of
Directors of Patriot REIT and Wyndham International, in the event that the
Proposing Board approves a Category 2 Matter or Category 3 Matter but the
other Board does not, the action authorized by the Proposing Board may not be
implemented. The Cooperation Committee shall convene immediately following the
joint meeting (unless a quorum of the Cooperation Committee is not present, in
which case the Cooperation Committee shall convene as soon as practicable
thereafter) to consider the votes of the Boards taken at such meeting The
Boards will then follow the Reconsideration Process.
Following any meeting of the Cooperation Committee as described above, any
Proposing Board may reconsider a Category 2 Matter at any subsequent meeting
of such Board and, if the Proposing Board approves such matter by a majority
vote at such subsequent meeting, then the Proposing Board may take the action
contemplated by such matter regardless of the position of the other Board.
Following any meeting of the Cooperation Committee as described above, the
Proposing Board may reconsider a Category 3 Matter at any subsequent meeting
of such Board and, if the Proposing Board approves such matter by a 66 2/3%
vote at such subsequent meeting, then the Proposing Board may take the action
contemplated by such matter (but only if the other Board approves such matter
by a majority vote in the case of a Change in Control).
Pursuant to the Restated Charter of Patriot REIT, until the third
anniversary of the Merger, any Change in Patriot's Line of Business shall
require a 66 2/3% vote of the Patriot REIT Board and a majority vote of the
Wyndham International Board for approval.
Hotel Acquisitions Committee. Pursuant to the Restated Charters, as promptly
as practicable following the closing of the Merger, and thereafter as provided
in the Restated Charters, Patriot REIT and Wyndham International shall
establish a Hotel Acquisitions Committee to analyze, evaluate and consider
potential Hotel Acquisitions. The Hotel Acquisitions Committee shall have the
sole power and authority to cause Patriot REIT or Wyndham International, as
the case may be, to enter into a binding agreement with respect to Hotel
Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not exceeding (with
respect to each Hotel Acquisition or such series of Hotel Acquisitions as are
reasonably likely to be considered an integrated transaction) 5% of the total
combined market capitalization of the Patriot Companies computed as of the
last business day of the month immediately preceding the month during which
such Hotel Acquisition is to be authorized and based on the average closing
sale price of a Paired Share over the five (5) trading days immediately
preceding such business day. The members of the Hotel Acquisitions Committee
shall be determined as provided in the Cooperation Agreement. Notwithstanding
the foregoing, the Hotel Acquisitions Committee shall no longer have the power
and authority described in the Restated Charters of Patriot REIT on and after
the third anniversary of the Merger.
Limitation on Committees. Pursuant to the Restated Charters, for the term of
the Cooperation Agreement, the formation by Patriot REIT or Wyndham
International of either (i) an executive or similar committee of its Board of
Directors which is authorized to act upon any Category 2 Matter or Category 3
Matter or (ii) a nomination committee for the purpose of nominating directors
shall require the approval of the Board of Directors of the other company.
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Voting by Directors. Under the Restated Charters, any vote on any matter by
the Board of Directors of either Patriot REIT or Wyndham International or the
members of the Cooperation Committee, the Unpaired Equity Committee or the
Hotel Acquisitions Committee shall require for approval the affirmative vote
of the applicable number or percentage of all of the members of either such
Board of Directors then in office or the then existing members of the
Cooperation Committee, as the case may be.
Issuance of Paired Equity. Under the terms of the Restated Charter of
Wyndham International, from and after the date of the Cooperation Agreement
until the Termination Date, the Patriot REIT Board shall have the sole right
to authorize and to effect, or to cause Wyndham International and the Wyndham
International Board to effect, an Issuance of Paired Equity and to take or
cause to be taken any and all action in contemplation of, or in connection
with, an Issuance of Paired Equity. In connection therewith, the Patriot REIT
Board shall also have the authority to cause Wyndham International to comply
with the Paired Equity Issuance Procedures set forth in the Restated Charter
of Wyndham International. Patriot REIT shall be entitled to designate from
time to time one or more officers of Patriot REIT to serve as a Paired Equity
Officer/Director. The Patriot REIT Board shall have the authority to appoint
any such Paired Equity Officer/Director to the positions of vice president and
assistant secretary of Wyndham International. Any Paired Equity
Officer/Director may resign or be removed by Patriot REIT at any time and, at
any time thereafter, Patriot REIT may designate a new Paired Equity
Officer/Director. Any Paired Equity Officer/Director shall have the express
authority to do any and all acts and things related to any Issuance of Paired
Equity, including, without limitation, the execution and delivery in the name
and on behalf of Wyndham International of any and all documents, certificates
(including stock certificates) and other instruments necessary or appropriate
in connection with the issuance of any Wyndham International Common Stock
pursuant to an Issuance of Paired Equity, the engagement of investment
bankers, accountants, attorneys and other professionals, and the incurrence of
any and all other transaction costs related thereto. Wyndham International
shall at all times and in all circumstances maintain and support the position
that Patriot REIT has the sole right and power to authorize and effect, or to
cause Wyndham International and the Wyndham International Board to effect, the
Issuance of Paired Equity, and Wyndham International shall not assert
otherwise in any forum, proceeding, action or communication or take any other
action which is inconsistent with its obligations under the Restated Charter
of Wyndham International.
The terms of the Restated Charter of Wyndham International provide that
Patriot REIT shall give an Issuance Notice to Wyndham International as
promptly as practicable of each determination by Patriot REIT to engage in an
Issuance of Paired Equity. Such Issuance Notice shall include the proposed
material terms of such issuance, to the extent determined by Patriot REIT,
including whether such issuance is proposed to be pursuant to a public or
private offering, the amount of Paired Equity proposed to be issued, and the
manner of determining the offering price and other terms thereof.
The terms of the Restated Charter of Wyndham International provide that upon
receipt of an Issuance Notice, Wyndham International and the Wyndham
International Board shall promptly cooperate with Patriot REIT in every way to
effect such Issuance of Paired Equity pursuant to the terms and schedule
thereof as established by Patriot REIT.
Issuance of Unpaired Equity. Pursuant to the Restated Charter of Wyndham
International, Wyndham International shall have the right to engage in an
Issuance of Unpaired Equity upon the affirmative vote of a majority of the
members of the Unpaired Equity Committee. Pursuant to the Restated Charter of
Patriot REIT, Patriot REIT shall have the right to engage in an Issuance of
Unpaired Equity upon the affirmative vote of a majority of the members of the
Patriot REIT Board.
Removal of Directors. The terms of the Restated Charter of Wyndham
International provide that if at any time any director of Wyndham
International shall interfere or fail to cooperate fully with any Issuance of
Paired Equity, such director shall be deemed to be no longer acting within the
scope of his authority with respect to the management of the affairs of
Wyndham International and to have failed to remain qualified as a director. In
such event, such director shall automatically cease to be a director. The
determination of whether any director of Wyndham International has interfered
or failed to cooperate fully with any Issuance of Paired Equity shall be
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made by the Patriot REIT Board and notice of any such determination shall be
given by Patriot REIT to Wyndham International within 10 days after the date
of such determination. Notwithstanding when such determination and notice
shall be made and given, any such director shall be deemed to have ceased to
be a director at the time of any interference or failure to cooperate;
provided, however, that for purposes of any right to indemnification to which
such director would otherwise be entitled, such director shall be deemed to
have been acting as a director until such time as such determination and
notice shall be made and given, and such director's right to indemnification,
if any, shall in no way be prejudiced solely by reason of having acted as a
director during the period from the time of such interference or failure to
cooperate until such determination and notice are made and given.
Amendment of Charter. The Restated Charters provide that any amendment or
repeal of any of the provisions of the Restated Charters of Patriot REIT or
Wyndham International, as applicable, relating to the provisions of the
Cooperation Agreement shall first require a 66 2/3% vote of the Board of the
relevant corporation, as well as a 66 2/3% vote of the Board of the other
corporation.
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COMPARISON OF STOCKHOLDERS RIGHTS
The rights of Wyndham stockholders are presently governed by the DGCL, the
Wyndham Charter and the Wyndham Bylaws and the rights of the stockholders of
Patriot REIT and Patriot Operating Company are presently governed by the DGCL,
the Patriot REIT Charter, the Patriot Operating Company Charter, the Patriot
REIT Bylaws and the Patriot Operating Company Bylaws. In addition, the rights
of Patriot REIT stockholders and Patriot Operating Company stockholders are
presently governed by the Pairing Agreement and the Cooperation Agreement.
Under the terms of the Merger Agreement, upon stockholder approval of the
Proposals, the Patriot REIT Charter and the Patriot Operating Company Charter
will be amended and restated and such amended and restated charters will
become the Restated Charters of Patriot REIT and Wyndham International. In
addition, in connection with the Merger, the Patriot REIT Bylaws and Patriot
Operating Company Bylaws will be amended and restated to be made consistent
with the Restated Charters and will become the Restated Bylaws of Patriot REIT
and Wyndham International. The Merger Agreement also provides that the Pairing
Agreement will be amended by the Pairing Agreement Amendment and will become
the Amended Pairing Agreement. At the Effective Time, stockholders of Patriot
REIT and Patriot Operating Company, and stockholders of Wyndham, will become
stockholders of Patriot REIT and Wyndham International and their rights will
thereafter be governed by the DGCL, the Restated Charters, the Restated
Bylaws, the Amended Pairing Agreement and the Cooperation Agreement. In
considering the recommendation of the Boards of Directors of Patriot REIT and
Patriot Operating Company to approve the Proposals, stockholders of Patriot
REIT and Patriot Operating Company should be aware that the rights of
stockholders of Patriot REIT and Wyndham International under the Restated
Charters, the Restated Bylaws and the Amended Pairing Agreement will differ in
certain respects from the existing rights of the stockholders of Patriot REIT
and Patriot Operating Company under the Patriot REIT Charter, the Patriot
Operating Company Charter, the Patriot REIT Bylaws, the Patriot Operating
Company Bylaws and the Pairing Agreement. In addition, in considering the
recommendation of the Wyndham Board to approve the Merger Proposal,
stockholders of Wyndham should be aware that the rights of stockholders of
Wyndham under the Restated Charters, the Restated Bylaws, the Amended Pairing
Agreement and the Cooperation Agreement will differ in certain respects from
the existing rights of the stockholders of Wyndham under the Wyndham Charter
and the Wyndham Bylaws.
The following discussion summarizes (i) certain differences between the
rights of stockholders of Wyndham and the rights of stockholders of Patriot
REIT and Wyndham International and (ii) certain differences between the rights
of stockholders of Patriot REIT and Patriot Operating Company and the rights
of stockholders of Patriot REIT and Wyndham International. This summary does
not purport to be complete and is subject to and qualified in its entirety by
reference to: the Pairing Agreement Amendment and the Restated Charters, which
are attached as Annexes E and F, and G, respectively, to this Joint Proxy
Statement/Prospectus; the Wyndham Charter, the Wyndham Bylaws, the Patriot
REIT Charter, the Patriot Operating Company Charter, the Patriot REIT Bylaws,
the Patriot Operating Company Bylaws and the Cooperation Agreement, which are
incorporated by reference as exhibits to the Registration Statement of which
this Joint Proxy Statement/Prospectus is a part; and the relevant provisions
of the DGCL. Stockholders of Patriot REIT, Patriot Operating Company and
Wyndham should carefully read the Restated Charters.
COMPARISON OF RIGHTS OF WYNDHAM STOCKHOLDERS TO STOCKHOLDERS OF PATRIOT REIT
AND WYNDHAM INTERNATIONAL
Amendment of Charter
In conformity with the DGCL, amendment of the Wyndham Charter generally
requires the approval of the Board of Directors and the approval of the
stockholders by the affirmative vote of a majority of the outstanding shares
entitled to vote on such amendment, with the exception of a number of
provisions of the Wyndham Charter, which require the approval of greater
proportions.
The Restated Charters provide that, with the exception of certain provisions
concerning business combinations with interested stockholders which require
the approval of a greater proportion, the Restated
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Charter may be amended in the manner prescribed by the DGCL, which requires
the approval of the Board of Directors and the approval of the stockholders by
the affirmative vote of a majority of the outstanding shares entitled to vote
on such amendment. With respect to the provisions of the Restated Charters
relating to the provisions of the Cooperation Agreement, an amendment or
repeal of any of such provisions requires a 66 2/3% vote of the Board of the
relevant corporation, as well as a 66 2/3 vote of the Board of the other party
to the Cooperation Agreement, and thereafter the affirmative vote of a
majority of the outstanding shares of the relevant corporation entitled to
vote on such amendment or repeal.
Accordingly, the stockholders of Patriot REIT and Wyndham International will
generally have the same ability to amend the Restated Charters that Wyndham
stockholders have to amend the Wyndham Charter.
Amendment of Bylaws
The Wyndham Bylaws may be amended or altered (i) at any meeting of the Board
of Directors by the vote of a majority of the directors then in office or (ii)
by the affirmative vote of the holders of at least two-thirds of the voting
power of all shares entitled to vote generally in the election of directors
voting together as a single class.
The Restated Bylaws may be amended or repealed (i) except as otherwise
provided by law, by the affirmative vote of a majority of the directors then
in office or (ii) at any meeting of stockholders by the affirmative vote of at
least two-thirds of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class; provided, however, that if the Board of Directors
recommends that stockholders approve such amendment or repeal at such meeting
of stockholders, such amendment or repeal shall only require the affirmative
vote of the majority of the shares present in person or represented by proxy
at such meeting and entitled to vote on such amendment or repeal, voting
together as a single class.
Thus, stockholders of Patriot REIT and Wyndham International will generally
have the same ability to amend or repeal the Restated Bylaws as Wyndham
stockholders have to amend or repeal the Wyndham Bylaws.
Directors
The Wyndham Charter provides that the number of directors of Wyndham shall
be fixed from time to time by action of not less than a majority of the
members of the Board of Directors then in office, though less than a quorum,
and in any event, shall not be less than five nor more than thirteen. The
directors are divided into three classes, designated Class I, Class II and
Class III, with the number of directors in each class equal to the whole
number contained in the quotient arrived at by dividing the authorized number
of directors by three. If a fraction is also contained in such quotient, then
if such fraction is one-third, the extra director shall be a member of Class
III and if the fraction is two-thirds one of the extra directors shall be a
member of Class III and the other shall be a member of Class II. Pursuant to
the Wyndham Charter, the term of office of one class of directors expires each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified. Any vacancy occurring in the Board of Directors may be filled
only by a majority vote of the directors then in office, even if less than a
quorum of the Board of Directors, and any directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been elected expires and until
such director's successor is duly elected and qualified. The Wyndham Charter
provides that a director may be removed only for cause and only by the vote of
the holders of a majority of the securities of Wyndham then entitled to be
cast in the election of directors. Removal of directors is also subject to a
certain Stockholders' Agreement among Wyndham and certain Wyndham stockholders
dated as of May 24, 1996 (the "Wyndham Stockholders' Agreement"). Pursuant to
the Wyndham Stockholders' Agreement, a member or members of the Wyndham Board
representing the interests of a stockholder group may be removed from the
Wyndham Board if such stockholder group is represented by a number of members
on the Wyndham board that exceeds the number to which such stockholders group
is entitled. The Wyndham Stockholders' Agreement also provides that service on
the Wyndham Board by officers
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of Wyndham is conditioned upon such officers continuing to hold their
positions as officers of Wyndham and, any such officers who do not continue to
hold their offices will be removed from the Wyndham Board. The members of the
Wyndham Board that the stockholder groups are entitled to nominate are also
subject to removal from the Wyndham Board with or without cause, upon written
notice to Wyndham by a stockholder group. The Wyndham Stockholders' Agreement
will terminate as of the Effective Time.
The Restated Charters and Restated Bylaws provide that the number of
directors shall be fixed by resolution duly adopted from time to time by the
Board of Directors. Pursuant to the Restated Charters, the directors are
divided into three classes with the term of office of one class expiring each
year. As the term of each class expires, directors in that class will be
elected for a term of three years and until their successors are duly elected
and qualified.
The Restated Charters provide that a director may be removed, only for
cause, by the vote of holders of at least 75% of the outstanding shares of
capital stock entitled to vote for the election of directors at a special
meeting of the stockholders called for the purpose of removing such director.
"Cause," with respect to the removal of any director, is defined in the
Restated Charters to mean only (i) conviction of a felony, (ii) declaration of
unsound mind by order of court (iii) gross dereliction of duty, (iv)
commission of any action involving moral turpitude, or (v) commission of an
action which constitutes intentional misconduct or a knowing violation of law
if such action in either event results both in an improper substantial
personal benefit and a material injury to Patriot REIT or Wyndham
International, as the case may be.
Under the terms of the Restated Charters, any and all vacancies in the Board
of Directors, however occurring, shall be filled solely by the affirmative
vote of a majority of the remaining directors then in office, even if less
than a quorum of the Board of Directors. Any director so appointed shall hold
office for the remainder of the full term of the class of directors in which
the vacancy occurred and until such director's successor shall have been duly
elected and qualified or until such director's earlier resignation or removal.
The staggered board provision in the Restated Charters prevents stockholders
of Patriot REIT and Wyndham International from voting on the election of all
directors at each annual meeting. The existence of a staggered board and the
fact that directors may only be removed for cause may have the effect of
delaying or deferring a change in control of Patriot REIT and Wyndham
International or the removal of incumbent management.
Limitation of Liability
The Wyndham Charter, in conjunction with the DGCL, provides that, a director
shall not be personally liable to Wyndham or its stockholders for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to Wyndham or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any
transaction from which the director derived an improper personal benefit.
The Restated Charters, in conjunction with the DGCL, eliminate a director's
personal liability (and the personal liability of a member of any duly
authorized and constituted committee of Patriot REIT or Wyndham International,
as the case may be, or of their respective Boards) to Patriot REIT or Wyndham
International, as the case may be, or their respective stockholders for breach
of fiduciary duty, except for liability (i) for any breach of the director's
duty of loyalty to Patriot REIT or Patriot Operating Company, as the case may
be, or their respective stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the DGCL or (iv) for any transaction from which the
director derived an improper personal benefit.
Indemnification
The DGCL permits, but does not require, a corporation to indemnify its
directors, officers, employees or agents and expressly provides that the
indemnification provided for under the DGCL shall not be deemed
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exclusive of any indemnification right under any bylaw, vote of stockholders
or disinterested directors, or otherwise. The DGCL permits indemnification
against expenses and certain other liabilities arising out of legal actions
brought or threatened against such persons for their conduct on behalf of the
corporation, provided that each such person acted in good faith and in a
manner that he reasonably believed was in or not opposed to the corporation's
best interests and in the case of a criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful. The DGCL does not allow
indemnification of directors in the case of an action by or in the right of
the corporation (including stockholder derivative suits) unless the directors
successfully defend the action or indemnification is ordered by the court.
The Wyndham Charter provides for indemnification to the fullest extent
authorized by the DGCL and, therefore, these statutory indemnification rights
are available to the directors, officers, employees and agents of Wyndham.
Similarly, the Restated Bylaws provide for indemnification to the fullest
extent authorized by the DGCL and, therefore, these statutory indemnification
rights are available to the directors, officers, employees and agents of
Patriot REIT and Wyndham International.
Special Meetings of Stockholders
The Wyndham Charter and Wyndham Bylaws provide that a special meeting of
stockholders may only be called by the Chairman of the Board or the Board of
Directors. Similarly, the Restated Bylaws provide that a special meeting of
stockholders may only be called by the Chairman of the Board of Directors or a
majority of the Board of Directors.
Accordingly, like the Wyndham stockholders, stockholders of Patriot REIT and
Wyndham International will have no ability to call a special meeting of
stockholders.
Action by Stockholders Without a Meeting
The Wyndham Charter provides that any action required or permitted to be
taken at any annual or special meeting of stockholders may only be taken upon
the vote of the stockholders at an annual or special meeting duly called and
may not be taken by written consent of the stockholders.
The Restated Charters provide that any action required or permitted to be
taken at any annual or special meeting of stockholders may be taken in lieu of
such meeting only by unanimous written consent of the stockholders signed by
each stockholder entitled to vote on the matter.
Accordingly, unlike the Wyndham stockholders, stockholders of Patriot REIT
and Wyndham International will have the ability to take action without an
annual or special meeting of the stockholders.
Restrictions on Ownership and Transfer; Pairing
The Wyndham Charter and the Wyndham Bylaws do not include any provisions
restricting the ownership or transfer of Wyndham stock.
The Restated Bylaws provide that, until such time as the limitation on
transfer provided for in the Amended Pairing Agreement shall be terminated,
shares of Patriot REIT Common Stock and Wyndham International Common Stock
shall not be transferable or transferred on the books of either company unless
a simultaneous transfer is made by the same transferor to the same transferee
of an equal number of shares of common stock of the other company and such
shares are paired with one another. In addition, pursuant to the Amended
Pairing Agreement, Patriot REIT and Wyndham International may not issue shares
of Patriot REIT Common Stock and Wyndham International Common Stock unless
provision has been made for the simultaneous issuance or transfer to the same
person of the same number of shares of common stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity (other than certain Look-Through Entities) may Beneficially
Own or Constructively Own in excess of 8.0% of the outstanding
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shares of any class or series of Equity Stock of Patriot REIT or Wyndham
International, unless the Ownership Limit is waived by the Board of Directors
of the relevant corporation in accordance with the Restated Charters. For
purposes of computing the percentage of shares of any class or series of
Equity Stock of Patriot REIT or Wyndham International Beneficially Owned by
any person or entity, any shares of Equity Stock of Patriot REIT or Wyndham
International which are deemed to be Beneficially Owned by such person or
entity pursuant to Rule 13d-3 of the Exchange Act but which are not
outstanding shall be deemed to be outstanding. Any transfer of shares of
Equity Stock of Patriot REIT or Wyndham International that would (i) result in
any person or entity owning, directly or indirectly, shares of Equity Stock of
Patriot REIT or Wyndham International in excess of the Ownership Limit, unless
the Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters, (ii) result in the
capital stock of Patriot REIT being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (iii) result in Patriot REIT being "closely
held" within the meaning of Section 856(h) of the Code or (iv) cause Patriot
REIT to own, actually or constructively, 10% or more of the ownership
interests in a tenant of the real property of Patriot REIT or a subsidiary of
Patriot REIT within the meaning of Section 856(d)(2)(B) of the Code, shall be
void ab initio, and the intended transferee will acquire no rights in such
shares of Equity Stock. The Restated Charters provide that pension plans
described in Section 401(a) of the Code and mutual funds registered under the
Investment Company Act of 1940 are treated as Look-Through Entities that are
subject to a 9.8% Look-Through Ownership Limit. Pension plans and mutual funds
are among the entities that are not treated as holders of stock under the Five
or Fewer Requirement and the beneficial owners of such entities will be
counted as holders for this purpose.
Thus, Wyndham stockholders who become stockholders of Patriot REIT and
Wyndham International will be subject to the ownership and transfer provisions
provided for in the Restated Charters and the Restated Bylaws. Such ownership
and transfer restrictions may have the effect of delaying, deferring or
preventing the acquisition or control of Patriot REIT and Wyndham
International.
Stockholder Approval of Certain Business Combination Transactions
The DGCL requires that a business combination be approved by a majority of
the outstanding shares of the corporation entitled to vote on such a matter,
or a greater proportion if required by the certificate of incorporation. In
addition, under the DGCL, a publicly-held corporation may not engage, with
certain exceptions, in a business combination with an "interested stockholder"
for a period of three years following the time of the transaction in which the
person became an interested stockholder. Subject to certain exceptions, the
DGCL defines an "interested stockholder" as a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
the corporation's voting stock. The Wyndham Charter provides that a merger or
consolidation shall be approved by at least two-thirds of the votes entitled
to be cast by each voting group that is entitled to vote on such transaction.
The Restated Bylaws provide that any corporate action, except where a larger
vote is required by law, the Restated Charters or the Restated Bylaws, shall
be approved at a stockholder meeting at which a quorum is present by the
affirmative vote of a majority of shares present in person or by proxy at such
meeting and entitled to vote on the matter. The DGCL provides for a larger
vote with respect to business combinations and, therefore, a business
combination involving Patriot REIT or Wyndham International requires the
approval of a majority of the outstanding shares of Patriot REIT or Wyndham
International, as the case may be. In addition, the Restated Charters provide
that a business combination with a Related Person requires, with certain
exceptions, the approval of 66 2/3% of the outstanding shares of the capital
stock of Patriot REIT or Wyndham International, as the case may be, which
shall include the affirmative vote of at least 50% of the outstanding shares
the capital stock held by stockholders other than the Related Person. However,
such 66 2/3% voting requirement shall not be applicable if the business
combination was approved by the Board of Directors prior to the acquisition by
such Related Person of the beneficial ownership of 5% or more of the
outstanding shares of the capital stock of Patriot REIT or Wyndham
International, as the case may be.
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Transactions with Certain Affiliated Persons
The Restated Bylaws provide that any action pertaining to any transaction
involving Patriot REIT or Wyndham International, as the case may be, in which
an advisor, director or officer of such corporation, or any affiliate of any
of the foregoing persons, has any direct or indirect interest other than
solely as a result of their status as a director, officer, or stockholder of
such corporation, must be approved by a majority of the directors, including a
majority of the Independent Directors (as defined in the Restated Bylaws),
even if the Independent Directors constitute less than a quorum. The Wyndham
Charter and the Wyndham Bylaws do not include provisions restricting
transactions with affiliated persons, although the Wyndham Board has adopted a
policy requiring that material transactions between Wyndham and related
parties must be approved by a majority of its independent directors based upon
the directors' determination that the terms of the transaction are no less
favorable to Wyndham than those that could be obtained from an unrelated third
party.
Appraisal Rights
Pursuant to the DGCL, a stockholder of a corporation engaging in certain
transactions may, under certain circumstances, dissent from a merger,
consolidation or other transaction and demand payment in cash in the amount of
the fair value of his or her shares (as appraised pursuant to judicial
proceedings) in lieu of the consideration such stockholder would otherwise
receive in such transaction.
Under the DGCL, stockholders of a corporation are entitled to appraisal
rights only with respect to certain statutory mergers or consolidations.
Unless otherwise provided in the certificate of incorporation, the DGCL does
not grant appraisal rights to (i) stockholders with respect to a merger or
consolidation of a corporation, the shares of which are either listed on a
national securities exchange or are held of record by more than 2,000 holders,
if such stockholders receive only shares of the surviving corporation or
shares of any other corporation which are either listed on a national
securities exchange or held of record by more than 2,000 holders or (ii)
stockholders of a corporation surviving a merger if no vote of the
stockholders of such corporation is required to approve the merger.
Repurchase and Redemption of Shares
The DGCL provides generally that the stock of any series or class may be
made subject to redemption by the corporation at its option or at the option
of the holders of such stock or upon the happening of an event; provided,
however, that (i) at the time of the redemption the corporation must have
outstanding shares of at least one class or series, which shares are not
redeemable and are endowed with full voting powers and (ii) such repurchase or
redemption must not impair the capital of the corporation.
Preferred Stock
Each of the Wyndham Charter and the Restated Charters authorize the Board of
Directors to provide for the issuance of preferred stock in one or more
series, to establish the number of shares in each series and to fix the
designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof.
Payment of Dividends
The DGCL provides that a corporation may, unless otherwise restricted by its
certificate of incorporation, declare and pay dividends out of surplus, or if
no surplus exists, out of its net profits for the current or preceding fiscal
year, provided that the amount of capital of the corporation following the
declaration and payment of the dividend is not less than the aggregate amount
of the capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets.
The Wyndham Charter and the Wyndham Bylaws provide that, subject to the
rights of holders of preferred stock, holders of Wyndham Common Stock shall be
entitled to receive such dividends payable in either cash, in
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property or in shares of stock of Wyndham, as may be declared by the Board of
Directors from time to time. Similarly, the Restated Charters provide that,
subject to the rights of holders of Preferred Stock, holders of Patriot REIT
Common Stock and Wyndham International Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock or property of
Patriot REIT or Wyndham International, as the case may be, as may be declared
thereon by the respective Board of Directors from time to time.
Dissolution
Under the DGCL, voluntary dissolution of a corporation generally requires
the adoption of a board of directors' resolution by a majority of the entire
board of directors approving the dissolution and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon.
Thus, the same vote of the stockholders of Patriot REIT and Wyndham
International is required to authorize voluntary dissolution as is currently
required for Wyndham stockholders.
Inspection of Books and Records
Under the DGCL, any stockholder of record has a right to examine the books
and records and the stockholder list of the corporation for a "proper
purpose." The DGCL defines a "proper purpose" as any purpose reasonably
related to such a person's interest as a stockholder, and allows a stockholder
of record to inspect the stockholder list during the 10-day period preceding a
meeting of the stockholders for any purpose germane to the meeting.
Thus, the books and records of Patriot REIT and Wyndham International will
be as accessible to their stockholders as are the books and records of
Wyndham.
Differences Resulting from the Amended Pairing Agreement
The Amended Pairing Agreement is unique to the paired share structure of
Patriot REIT and Wyndham International and provides that shares of Patriot
REIT Common Stock and Wyndham International Common Stock shall not be
transferable on the books of such company unless a simultaneous transfer is
made by the same transferor to the same transferee of an equal number of
shares of common stock of the other company. In addition, neither Patriot REIT
nor Wyndham International may issue shares of Patriot REIT Common Stock and
Wyndham International Common Stock unless provision has been made for the
simultaneous issuance or transfer to the same person of the same number of
shares of common stock of the other company and for the pairing of such
shares. See "Description of Capital Stock--The Amended Pairing Agreement."
Differences Resulting from the Cooperation Agreement
Under the terms of the Cooperation Agreement, Patriot REIT and Patriot
Operating Company will be obligated to cooperate to the fullest extent
possible in the conduct of their respective operations and to take all
necessary action to preserve the paired share structure and to maximize the
economic and tax advantages associated therewith. One of the primary
objectives of the Cooperation Agreement is to set forth the understanding of
the Patriot Companies that Patriot REIT shall have the sole right and power to
authorize, effect and control issuances of paired equity (including securities
convertible into paired equity) of the two companies. The Cooperation
Agreement will provide for a number of corporate governance mechanisms
designed to accomplish this objective and the other objectives set forth
therein. These mechanisms include (i) the establishment of a Cooperation
Committee that will consider and propose the agenda listing the matters to be
considered at any joint meeting of the Boards of Directors of Patriot REIT and
Patriot Operating Company, (ii) the establishment of corporate matters
categories and procedures for the consideration and reconsideration of matters
brought before the Boards of Directors of Patriot REIT and Patriot Operating
Company, (iii) the establishment of a Hotel Acquisitions Committee that will
analyze, evaluate and consider potential acquisitions by the Patriot Companies
of hotel properties and related assets, (iv) provision that will govern the
sole authority of Patriot REIT to authorize, effect and control issuances of
paired equity (including securities convertible into
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paired equity) of the two companies, and (v) the establishment of an Unpaired
Equity Committee that shall have the sole authority to authorize and approve
issuances of unpaired equity by Patriot Operating Company. See "Description of
Capital Stock--The Cooperation Agreement."
The rights and obligations of Patriot REIT and Patriot Operating Company
under the Cooperation Agreement will survive the Merger and will become the
rights and obligations of Patriot REIT and Wyndham International,
respectively, following the Merger. The existence of the Cooperation Agreement
may have the effect of delaying, deferring or preventing the acquisition or
control of Patriot REIT or Wyndham International.
The Cooperation Agreement provides that the Patriot Companies will take any
and all action necessary to cause their respective charters and bylaws to be
amended appropriately to effect the provisions of the Cooperation Agreement.
Accordingly, certain provisions of the Restated Charters reflect proposed
amendments to the Patriot REIT Charter and the Patriot Operating Company
Charter to effect the provisions of the Cooperation Agreement. See
"Description of Capital Stock--Certain Provisions of the Restated Charters and
Restated Bylaws--Provisions Relating to the Cooperation Agreement."
COMPARISON OF RIGHTS OF STOCKHOLDERS OF PATRIOT REIT AND PATRIOT OPERATING
COMPANY TO STOCKHOLDERS OF PATRIOT REIT AND WYNDHAM INTERNATIONAL FOLLOWING
THE MERGER
Restrictions on Ownership and Transfer
The Patriot Charters provide that until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
Patriot REIT Common Stock and Patriot Operating Company Common Stock and
shares of Preferred Stock which are convertible into shares of Patriot REIT
Common Stock and Patriot Operating Company Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of that same class or series of Equity Stock of the
other company and such shares are paired with one another. In addition,
pursuant to the Pairing Agreement, Patriot REIT and Patriot Operating Company
may not issue shares of Patriot REIT Common Stock and Patriot Operating
Company Common Stock or shares of Preferred Stock that are convertible into
shares of Patriot REIT Common Stock and Patriot Operating Company Common Stock
unless provision has been made for the simultaneous issuance or transfer to
the same person of the same number of shares of that same class or series of
Equity Stock of the other company and for the pairing of such shares.
The Patriot Charters provide, pursuant to the Ownership Limit, that no
person or entity may Beneficially Own or Constructively Own in excess of 9.8%
of the outstanding shares of any class or series of Equity Stock of Patriot
REIT or Patriot Operating Company, unless the Ownership Limit is waived by the
Board of Directors of the relevant corporation in accordance with the Patriot
REIT Charter and the Patriot Operating Company Charter, as the case may be.
For purposes of computing the percentage of shares of any class or series of
Equity Stock of Patriot REIT or Patriot Operating Company Beneficially Owned
by any person or entity, any shares of Equity Stock of Patriot REIT or Patriot
Operating Company which are deemed to be Beneficially Owned by such person or
entity pursuant to Rule 13d-3 of the Exchange Act but which are not
outstanding shall be deemed to be outstanding. Any transfer of shares of
Equity Stock of Patriot REIT or Patriot Operating Company that would (i)
result in any person or entity owning, directly or indirectly, shares of
Equity Stock of Patriot REIT or Patriot Operating Company in excess of the
Ownership Limit, unless the Ownership Limit is waived by the Board of
Directors of the relevant corporation in accordance with the Patriot REIT
Charter and the Patriot Operating Company Charter, as the case may be, (ii)
result in the capital stock of Patriot REIT being beneficially owned (within
the meaning of Section 856(a)(5) of the Code) by fewer than 100 persons within
the meaning of Section 856(a)(5) of the Code, (iii) result in Patriot REIT
being "closely held" within the meaning of Section 856(h) of the Code or (iv)
cause Patriot REIT to own, actually or constructively, 10% or more of the
ownership interests in a tenant of the real property of Patriot REIT or a
subsidiary of Patriot REIT within the meaning of Section 856(d)(2)(B) of the
Code, shall be void ab initio, and the intended transferee will acquire no
rights in such shares of Equity Stock.
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The Restated Bylaws provide that, until such time as the limitation on
transfer provided for in the Pairing Agreement shall be terminated, shares of
Patriot REIT Common Stock and Wyndham International Common Stock shall not be
transferable or transferred on the books of either company unless a
simultaneous transfer is made by the same transferor to the same transferee of
an equal number of shares of common stock of the other company and such shares
are paired with one another. In addition, pursuant to the Amended Pairing
Agreement, Patriot REIT and Wyndham International may not issue shares of
Patriot REIT Common Stock and Wyndham International Common Stock unless
provision has been made for the simultaneous issuance or transfer to the same
person of the same number of shares of common stock of the other company and
for the pairing of such shares.
The Restated Charters provide, pursuant to the Ownership Limit, that no
person or entity (other than a Look-Through Entity) may Beneficially Own or
Constructively Own in excess of 8.0% of the outstanding shares of any class or
series of Equity Stock of Patriot REIT or Wyndham International, unless the
Ownership Limit is waived by the Board of Directors of the relevant
corporation in accordance with the Restated Charters. For purposes of
computing the percentage of shares of any class or series of Equity Stock of
Patriot REIT or Wyndham International Beneficially Owned by any person or
entity, any shares of Equity Stock of Patriot REIT or Wyndham International
which are deemed to be Beneficially Owned by such person or entity pursuant to
Rule 13d-3 of the Exchange Act but which are not outstanding shall be deemed
to be outstanding. Any transfer of shares of Equity Stock of Patriot REIT or
Wyndham International that would (i) result in any person or entity owning,
directly or indirectly, shares of Equity Stock of Patriot REIT or Wyndham
International in excess of the Ownership Limit, unless the Ownership Limit is
waived by the Board of Directors of the relevant corporation in accordance
with the Restated Charters, (ii) result in the capital stock of Patriot REIT
being beneficially owned (within the meaning of Section 856(a)(5) of the Code)
by fewer than 100 persons within the meaning of Section 856(a)(5) of the Code,
(iii) result in Patriot REIT being "closely held" within the meaning of
Section 856(h) of the Code or (iv) cause Patriot REIT to own, actually or
constructively, 10% or more of the ownership interests in a tenant of the real
property of Patriot REIT or a subsidiary of Patriot REIT within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio, and the intended
transferee will acquire no rights in such shares of Equity Stock. The Restated
Charters provide that pension plans described in Section 401(a) of the Code
and mutual funds registered under the Investment Company Act of 1940 are Look-
Through Entities that are subject to a 9.8% Look-Through Ownership Limit.
Pension plans and mutual funds are among the entities that are not treated as
holders of stock under the Five or Fewer Requirement and the beneficial owners
of such entities will be counted as holders for this purpose.
Thus, stockholders of Patriot REIT and Patriot Operating Company who become
stockholders of Patriot REIT and Wyndham International will be subject to the
ownership and transfer provisions provided for in the Restated Charters and
the Restated Bylaws, which provisions provide for (i) except in the case of
Look-Through Entities, a lower ownership limit (8.0%) than that currently
provided for in the Patriot REIT Charter and the Patriot Operating Company
Charter, and (ii) the issuance and transfer of shares of capital stock that
are convertible into Paired Shares of Patriot REIT Common Stock and Wyndham
International Common Stock without the simultaneous issuance and transfer to
the same person of the same number of shares of that same class or series of
capital stock of the other company and the pairing of such shares. Such
ownership and transfer restrictions may have the effect of delaying, deferring
or preventing the acquisition or control of Patriot REIT and Wyndham
International.
Amendment of Bylaws
The Patriot REIT Bylaws and Patriot Operating Company Bylaws may be amended
by a majority vote of the stockholders of the respective companies.
Pursuant to the Restated Charters, the Restated Bylaws may be amended or
repealed (i) except as otherwise provided by law, by the affirmative vote of a
majority of the directors then in office or (ii) at any meeting of
stockholders by the affirmative vote of at least two-thirds of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class; provided,
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however, that if the Board of Directors recommends that stockholders approve
such amendment or repeal at such meeting of stockholders, such amendment or
repeal shall only require the affirmative vote of the majority of the shares
present in person or represented by proxy at such meeting and entitled to vote
on such amendment or repeal, voting together as a single class.
Thus, following the Merger, the Patriot REIT Board and the Patriot Operating
Company Board will have the right to amend the Patriot REIT Bylaws and the
Patriot Operating Company Bylaws, respectively, and the rights of stockholders
to amend such bylaws will be more limited.
Differences Resulting from the Amended Pairing Agreement
The Pairing Agreement currently provides that shares of Patriot REIT Common
Stock and Patriot Operating Company Common Stock or shares of Preferred Stock
which are convertible into shares of Patriot REIT Common Stock and Patriot
Operating Company Common Stock shall not be transferable or transferred on the
books of either company unless a simultaneous transfer is made by the same
transferor to the same transferee of an equal number of shares of that same
class or series of Equity Stock of the other company and such shares are
paired with one another. In addition, pursuant to the Pairing Agreement,
Patriot REIT and Patriot Operating Company may not issue shares of Patriot
REIT Common Stock and Patriot Operating Company Common Stock or shares of
Preferred Stock that are convertible into shares of Patriot REIT Common Stock
and Patriot Operating Company Common Stock unless provision has been made for
the simultaneous issuance or transfer to the same person of the same number of
shares of that same class or series of Equity Stock of the other company and
for the pairing of such shares.
The Amended Pairing Agreement provides that shares of Patriot REIT Common
Stock and Wyndham International Common Stock shall not be transferable on the
books of such company unless a simultaneous transfer is made by the same
transferor to the same transferee of an equal number of shares of common stock
of the other company. In addition, neither Patriot REIT or Wyndham
International may issue shares of Patriot REIT Common Stock and Wyndham
International Common Stock unless provision has been made for the simultaneous
issuance or transfer to the same person of the same number of shares of common
stock of the other company and for the pairing of such shares.
Thus, stockholders of Patriot REIT and Patriot Operating Company who become
stockholders of Patriot REIT and Wyndham International will be subject to the
terms of the Amended Pairing Agreement, which provides for the issuance and
transfer of shares of capital stock that are convertible into Paired Shares of
Patriot REIT Common Stock and Wyndham International Common Stock without the
simultaneous issuance and transfer to the same person of the same number of
shares of that same class or series of capital stock of the other company and
the pairing of such shares.
Differences Resulting from the Cooperation Agreement
The Cooperation Agreement provides that the Patriot Companies will take any
and all action necessary to cause their respective charters and bylaws to be
amended appropriately to effect the provisions of the Cooperation Agreement.
Accordingly, certain provisions of the Restated Charters and the Restated
Bylaws reflect proposed amendments to the Patriot REIT Charter and the Patriot
Operating Company Charter to effect the provisions of the Cooperation
Agreement. See "Description of Capital Stock--Certain Provisions of the
Restated Charters and Restated Bylaws--Provisions Relating to the Cooperation
Agreement." Such provisions may have the effect of delaying, deferring or
preventing the acquisition or control of Patriot REIT or Wyndham
International.
LITIGATION
On April 14, 1997, an action entitled Kwalbrun v. James D. Carreker, et al.,
Del. Ch., C.A. No. 15657-NC, was filed in the Delaware Court of Chancery in
and for New Castle County, purportedly as a class action on behalf of
stockholders of Wyndham, against Wyndham and the members of the Wyndham Board
(the
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"Defendants"). The complaint also purported to name Old Patriot REIT as a
defendant, but neither Old Patriot REIT nor Patriot REIT has been served with
the complaint. The complaint alleges that the Wyndham Board breached its
fiduciary duties owed to Wyndham's public stockholders in connection with the
Wyndham Board's approval of the Merger. In particular, the complaint alleges
that the Merger was negotiated at the expense of Wyndham's public
stockholders, and that the Wyndham Board permitted Old Patriot REIT to
negotiate on more favorable terms the acquisition by Old Patriot REIT of
certain Wyndham-branded hotels from the Crow Family Entities. Old Patriot REIT
is alleged to have knowingly aided and abetted the alleged breach of fiduciary
duties. The complaint seeks to enjoin, preliminarily and permanently,
consummation of the Merger under the terms presently proposed and also seeks
unspecified damages. On July 24, 1997, the Defendants moved to dismiss the
complaint and to stay discovery. The Defendants do not believe the allegations
in the complaint are meritorious and expect to defend the action vigorously.
In addition, Patriot REIT believes that the complaint is without merit and
would expect to defend the action vigorously if served.
SELLING SECURITYHOLDERS
This Joint Proxy Statement/Prospectus also relates to the offer of Paired
Shares from time to time by the Registration Rights Holders following the
Merger. See "The Merger and Subscription--Interests of Certain Officers,
Directors and Stockholders of Wyndham--Registration Rights Agreement." The
following table provides the names of each Registration Rights Holder, the
number of shares of Wyndham Common Stock owned by such holder as of November
3, 1997, and the number of Paired Shares offered by each Registration Rights
Holder, to the best knowledge of the Patriot Companies.
<TABLE>
<CAPTION>
SHARES OF WYNDHAM
COMMON STOCK PAIRED SHARES
OWNED AS OF OFFERED BY PERCENT OF
NAME NOVEMBER 3, 1997 THIS PROSPECTUS(1) ALL PAIRED SHARES(1)
- ---- ----------------- ------------------ --------------------
<S> <C> <C> <C>
CF Securities, L.P...... 9,447,745 13,585,857(2) 13.71%
Bedrock(3).............. 2,276,055 3,272,967(4) 3.30%
James D.
Carreker(6)(8)......... 1,251,087 1,799,063(5) 1.82%
Leslie V.
Bentley(7)(8).......... 392,057 563,778(5) *
Anne L. Raymond(8)...... 380,151 546,657(5) *
Stanley M. Koonce,
Jr.(8)................. 388,001 557,945(5) *
</TABLE>
- --------
* Less than 1%
(1) Assumes each share of Wyndham Common Stock will be converted into 1.438
Paired Shares or, in the case of CF Securities, shares of Series A
Preferred Stock, which is the maximum Exchange Ratio under the Merger
Agreement. Such share numbers may be reduced as a result of a lower actual
Exchange Ratio and/or as a result of Cash Consideration paid to Wyndham
stockholders and CF Securities in connection with Cash Elections. The
Exchange Ratio is set at 1.372 Paired Shares (or shares of Series A
Preferred Stock) for each share of Wyndham Common Stock, but it is subject
to adjustment in accordance with the terms of the Merger Agreement. See
"The Merger Agreement--The Merger and Subscription."
(2) Includes Paired Shares issuable to CF Securities upon conversion of shares
of Series A Preferred Stock.
(3) Bedrock owns its shares of Wyndham Common Stock through Wynopt Investment
Partnership, L.P. and Wynopt Investment Partnership Level II, L.P.
(4) Represents the maximum number of Paired Shares offered by Bedrock,
assuming that Bedrock does not make a Cash Election in the Merger.
(5) Represents the maximum number of Paired Shares offered by such persons,
assuming that none of such persons makes a Cash Election in the Merger.
(6) Includes 77,671 shares of Wyndham Common Stock held in a trust for which
Mr. Carreker is the special trustee and has full voting rights.
(7) Includes 61,680 shares of Wyndham Common Stock held in trusts for which
Mr. Bentley is the special trustee and has full voting rights.
(8) Each of Messrs. Carreker, Bentley and Koonce and Ms. Raymond have advised
the Patriot Companies that they intend to make a Cash Election to receive
Cash Consideration for a substantial portion of the shares of Wyndham
Common Stock held by him or her.
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PLAN OF DISTRIBUTION
This Joint Proxy Statement/Prospectus also relates to the offer from time to
time following the Merger by the Registration Rights Holders of Paired Shares,
including the Paired Shares that are issuable upon conversion of shares of
Series A Preferred Stock. See "The Merger and Subscription--Interests of
Certain Officers, Directors and Stockholders of Wyndham--Registration Rights
Agreement." The Patriot Companies have registered the Paired Shares for sale
pursuant to their obligations under the Registration Rights Agreement, but
registration of such shares does not necessarily mean that any of the Paired
Shares will be offered or sold by the Registration Rights Holders. Neither
Patriot REIT nor Wyndham International will receive any of the proceeds of the
sale of the Paired Shares offered hereby.
The distribution of Paired Shares may be effected from time to time in one
or more underwritten transactions at a fixed price or prices, which may be
changed, or in other transactions at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. Any such underwritten offering may be on either a "best efforts" or a
"firm commitment" basis. In connection with any such underwritten offering,
underwriters or agents may receive compensation in the form of discounts,
concessions or commissions from the Registration Rights Holders and/or from
purchasers of the Paired Shares for whom they may act as agents. Underwriters
may sell Paired Shares to or through dealers, and such dealers may receive
compensation in the form of discounts, concessions or commissions from the
underwriters and/or commissions from the purchasers for whom they may act as
agents.
The Registration Rights Holders and any underwriters, dealers or agents that
participate in the distribution of Paired Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of Paired Shares by them and any discounts, commissions or concessions
received by any such underwriters, dealers or agents might be deemed to be
underwriting discounts and commissions under the Securities Act.
At a time a particular offer of Paired Shares is made by a Registration
Rights Holder, a prospectus supplement, if required, will be distributed that
will set forth the names of any underwriters, dealers or agents and any
discounts, commissions and other terms constituting compensation from the
Registration Rights Holders and any other required information.
The sale of Paired Shares by the Registration Rights Holders may also be
effected from time to time by selling Paired Shares directly to purchasers or
to or through broker-dealers. In connection with any such sale, any such
broker-dealer may act as agent for the Registration Rights Holders or may
purchase from the Registration Rights Holders all or a portion of the Paired
Shares as principal, and sales may be made pursuant to any of the methods
described below. Such sales may be made on the NYSE or other exchanges on
which the Paired Shares are then traded, in the over-the-counter market, in
negotiated transactions or otherwise, in each case at prices and at terms then
prevailing or at prices related to the then-current market prices or at prices
otherwise negotiated.
The Paired Shares may also be sold in one or more of the following
transactions: (i) block transactions (which may involve crosses) in which a
broker-dealer may sell all or a portion of such shares as agent but may
position and resell all or a portion of the block as principal to facilitate
the transaction; (ii) purchases by any such broker-dealer as principal and
resale by such broker-dealer for its own account pursuant to a prospectus
supplement; (iii) a special offering, an exchange distribution or a secondary
distribution in accordance with applicable NYSE or other stock exchange rules;
(iv) ordinary brokerage transactions and transactions in which any such
broker-dealer solicits purchasers; (v) sales "at the market" to or through a
market maker or into an existing trading market, on an exchange or otherwise,
for such shares; and (vi) sales in other ways not involving market makers or
established trading markets, including direct sales to purchasers. In
effecting sales, broker-dealers engaged by the Registration Rights Holders may
arrange for other broker-dealers to participate. Broker-dealers will receive
commissions or other compensation from the Registration Rights Holders in
amounts to be negotiated immediately prior to the sale that will not exceed
those customary in the types of transactions
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involved. Broker-dealers may also receive compensation from purchasers of the
Paired Shares which is not expected to exceed that customary in the types of
transactions involved.
In order to comply with the securities laws of certain states, if
applicable, the Paired Shares may be sold only through registered or licensed
brokers or dealers.
Until the distribution of the Paired Shares is completed, rules of the
Commission may limit the ability of any underwriters and selling group members
to bid for and purchase the Paired Shares. As an exception to these rules,
underwriters are permitted to engage in certain transactions that stabilize
the price of the Paired Shares. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Paired
Shares.
If any underwriters create a short position in the Paired Shares in
connection with the offering, i.e., if they sell more Paired Shares than are
set forth on the cover page of this Joint Proxy Statement/Prospectus, the
underwriters may reduce that short position by purchasing Paired Shares in the
open market.
The lead underwriters may also impose a penalty bid on certain other
underwriters participating in the offering and selling group members. This
means that if the lead underwriters purchase Paired Shares in the open market
to reduce the underwriters' short position or to stabilize the price of the
Paired Shares, they may reclaim the amount of any selling concession from the
underwriters and selling group members who sold those Paired Shares as part of
the offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resale of the security before the distribution is
completed.
Neither of the Patriot Companies makes any representation or prediction as
to the direction or magnitude of any effect that the transactions described
above might have on the price of the Paired Shares. In addition, neither of
the Patriot Companies makes any representation that underwriters will engage
in such transactions or that such transactions, once commenced, will not be
discontinued without notice.
All expenses incident to the offering and sale of the Paired Shares (other
than brokerage and underwriting commissions and taxes of any kind and any
legal, accounting and other expenses incurred by the Registration Rights
Holders) shall be paid by the Patriot Companies. The Patriot Companies have
agreed to indemnify the Registration Rights Holders against certain losses,
claims, damages and liabilities, including liabilities under the Securities
Act. See "The Merger and Subscription--Interests of Certain Officers,
Directors and Stockholders of Wyndham--Registration Rights Agreement."
OTHER MATTERS
It is not expected that any matters other than those described in this Joint
Proxy Statement/Prospectus will be brought before the Patriot Special Meetings
or the Wyndham Special Meeting. If any other matters are presented, however,
it is the intention of the persons named in the Patriot REIT proxy, the
Patriot Operating Company proxy and the Wyndham proxy to vote the proxy,
respectively, in accordance with their best judgment.
LEGAL MATTERS
Certain legal matters in connection with the Merger and Related Transactions
will be passed upon for Wyndham by Locke Purnell Rain Harrell (A Professional
Corporation), Dallas, Texas. Certain legal matters in connection with the
Merger and Related Transactions, the validity of the Paired Shares to be
issued pursuant to the Merger and the validity of the Merger Subscribed Shares
to be issued pursuant to the Merger Subscription,
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the validity of the Paired Shares to be issued pursuant to the Stock Purchase
and the validity of the Stock Purchase Subscribed Shares to be issued pursuant
to the Stock Purchase Subscription, and the validity of the shares of Series A
Preferred Stock to the issued pursuant to the Stock Purchase will be passed
upon for the Patriot Companies by Goodwin, Procter & Hoar llp, Boston,
Massachusetts.
EXPERTS
The (a) Consolidated Financial Statements of Old Patriot REIT as of December
31, 1996 and 1995 and for the year ended December 31, 1996 and the period
October 2, 1995 (inception of operations) through December 31, 1995 and the
related financial statement schedules, (b) the Combined Financial Statements
of the Initial Hotels as of December 31, 1994 and for the year ended December
31, 1994 and the period January 1, 1995 through October 1, 1995, and (c) the
Financial Statements of NorthCoast Hotels, L.L.C. as of December 31, 1996 and
the period April 2, 1996 (inception of operations) through December 31, 1996
appearing in Old Patriot REIT's 1996 Annual Report on Form 10-K (and with
respect to the Consolidated Financial Statements of Old Patriot REIT referred
to above also appearing in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated July 1, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. With respect to the Combined Financial
Statements of the Initial Hotels, such report is based in part on the reports
of Coopers & Lybrand L.L.P., independent accountants, as set forth in their
respective reports for Certain of the Initial Hotels and Troy Hotel Investors.
The (a) Financial Statements of Buckhead Hospitality Joint Venture as of
December 31, 1995 and for the year then ended, (b) the Combined Financial
Statements of Gateway Hotel Limited Partnership and Wenatchee Hotel Limited
Partnership as of December 31, 1995 and for the year then ended, and (c) the
individual Statements of Direct Revenue and Direct Operating Expenses for the
Plaza Park Suites Hotel and the Roosevelt Hotel for the year ended December
31, 1995, appearing in Old Patriot REIT's Current Report on Form 8-K, dated
April 2, 1996, as amended (filed April 17, 1996 and June 14, 1996), have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. The (a)
Statement of Direct Revenue and Direct Operating Expenses of the Mayfair
Suites Hotel for the year ended December 31, 1995, (b) Statement of Direct
Revenue and Direct Operating Expenses of Marriott WindWatch Hotel for the year
ended December 29, 1995, and (c) the Financial Statements of Concorde O'Hare
Limited Partnership as of December 29, 1995 and for the year then ended
appearing in Old Patriot REIT's Current Report on Form 8-K, dated December 5,
1996 (filed December 5, 1996), have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon included therein
and incorporated herein by reference. The (a) Consolidated Financial
Statements of Resorts Limited Partnership as of and for the years ended
December 31, 1996 and 1995, (b) Financial Statements of CV Ranch Limited
Partnership as of and for the years ended December 31, 1996 and 1995, and (c)
Financial Statements of Telluride Resort and Spa Limited Partnership as of and
for the years ended December 31, 1996 and 1995, appearing in Old Patriot
REIT's Current Report on Form 8-K, dated January 16, 1997, as amended (filed
January 31, 1997, February 21, 1997, April 8, 1997, April 9, 1997, and May 19,
1997) have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon included therein and incorporated herein by
reference. The (a) Consolidated Financial Statements of GAH-II, L.P. as of
December 31, 1996 and 1995 and for the years then ended, (b) the Financial
Statements of G.B.H. Joint Venture (d/b/a Grand Bay Hotel) as of December 31,
1996 and 1995 and for the years then ended, (c) the Financial Statements of
River House Associates (d/b/a Sheraton Gateway Hotel) as of December 31, 1996
and 1995 and for the years then ended, and (d) the Financial Statements of W-L
Tampa, Ltd. (the Sheraton Grand Hotel) as of December 31, 1996 and 1995 and
for the years then ended, appearing in the Joint Current Report on Form 8-K of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated September 30, 1997, as amended (filed October 14, 1997 and
October 28, 1997), have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. The (a) Consolidated Financial Statements of
ClubHouse Hotels, Inc. as of December 31, 1996 and 1995, and for each of the
three years in the period ended December 31, 1996, (b) the Combined Financial
Statements of ClubHouse Acquisition Hotels as of December 31, 1996 and 1995
and for the
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years then ended, and (c) the Financial Statements of Valdosta C. I.
Associates, L.P. as of December 31, 1994 and for the year then ended,
appearing in Wyndham's Current Report on Form 8-K, dated July 31, 1997, as
amended (filed August 15, 1997 and September 18, 1997), have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. The (a) Consolidated
Financial Statements of WHG Resorts & Casinos Inc. as of June 30, 1997 and
1996, and for each of the three years in the period ended June 30, 1997 and
the related financial statement schedule, (b) Financial Statements of Posadas
de San Juan Associates as of June 30, 1997 and 1996, and for each of the three
years in the period ended June 30, 1997 and the related financial statement
schedule, (c) Financial Statements of WKA El Con Associates as of June 30,
1997 and 1996, and for each of the three years in the period ended June 30,
1997, and (d) Financial Statements of El Conquistador Partnership L.P. as of
March 31, 1997 and 1996, and for each of the three years in the period ended
March 31, 1997, included in this Joint Proxy Statement/Prospectus of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company,
which is referred to and made part of this Prospectus and Joint Registration
Statement, have been audited by Ernst & Young LLP, independent auditors, as
set forth in their reports appearing elsewhere herein. Each of the above
referenced financial statements are included herein or incorporated herein by
reference in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
The Financial Statements of Certain of the Initial Hotels as of December 31,
1994 and for the period from January 1, 1995 to October 1, 1995 and for the
year ended December 31, 1994, the Financial Statements of Troy Hotel Investors
as of October 1, 1995 and for the period January 1, 1995 to October 1, 1995
and Troy Park Associates as of December 29, 1994 and for the period January 1,
1994 through December 29, 1994, included in Old Patriot REIT's 1996 Annual
Report on Form 10-K, the statement of Direct Revenue and Direct Operating
Expenses for the Holiday Inn--Miami Airport for the year ended August 31, 1996
included in Old Patriot REIT's Current Report dated December 5, 1996, the
Consolidated Financial Statements of Wyndham Hotel Corporation as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996, included in the Report on Form 10-K dated March 26, 1997 of Wyndham
Hotel Corporation, the Combined Financial Statements of Minneapolis Hotels as
of and for the year ended December 31, 1996, the Combined Financial Statements
of Snavely Hotels as of and for the year ended December 31, 1996, and the
combined statement of Direct Revenue and Direct Operating Expenses for the Met
Life Hotels for the year ended December 31, 1996, included in the Report on
Form 8-K dated September 17, 1997, and the Financial Statements of SCP
("Buttes") Inc. as of December 31, 1996 and for the year then ended, included
in the Report on Form 8-K dated September 30, 1997, incorporated by reference
in this Joint Proxy Statement/Prospectus, have been audited by Coopers &
Lybrand, L.L.P., independent accountants, as set forth in their reports
thereon. Each of the above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.
The Financial Statements of Historic Hotel Partners of Birmingham Limited
Partnership as of December 31, 1994 and 1995 and for the years then ended, the
Financial Statements of Historic Hotel Partners of Chicago, Limited
Partnership as of December 31, 1996 and for the year then ended, and the
Financial Statements of Historic Hotel Partners of Nashville, Limited
Partnership as of December 31, 1996 and for the year then ended incorporated
by reference in this Joint Proxy Statement/Prospectus, have been audited by
Pannell Kerr Forster PC, independent auditors, as set forth in their reports
thereon. Each of the above referenced financial statements have been
incorporated by reference herein in reliance upon the authority of said firm
as experts in accounting and auditing.
The CHC Lease Partners financial statements as of December 31, 1996 and 1995
and for the year ended December 31, 1996 and the period inception (October 2,
1995) through December 31, 1995, incorporated by reference in this Joint Proxy
Statement/Prospectus, by reference to the Current Report on Form 8-K dated
July 1, 1997, and the CHC International, Inc. Hospitality Division financial
statements as of November 30, 1996 and 1995 and for the years then ended,
incorporated by reference in this Prospectus, by reference to the Current
Report on Form 8-K dated September 30, 1997, as amended, have been so
incorporated in reliance on the reports of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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The Separate and Combined Financial Statements of Patriot REIT and Patriot
Operating Company and its subsidiary (formerly known as Cal Jockey and Bay
Meadows) as of December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996, incorporated in this Joint Proxy
Statement/Prospectus by reference from the Annual Report on Form 10-K for the
year ended December 31, 1996 have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report with respect thereto (which
expresses an unqualified opinion and includes an explanatory paragraph
relating to the proposed merger and certain disagreements between Patriot REIT
and Patriot Operating Company), which is incorporated herein by reference. The
combined financial statements of the Partnerships of Acquired Hotels as of
December 31, 1996 and 1995 and for each of the two years in the period ended
December 31, 1996, incorporated in this Joint Proxy Statement/Prospectus by
reference from the report on Form 8-K/A No. 1 dated September 30, 1997 of
Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report, which is incorporated herein by reference. Each of the
financial statements referenced in this paragraph are incorporated herein by
reference in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
The Combined Financial Statements of the Crow Family Hotel Partnerships
included in this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts.
The Financial Statements of each of Wichita C.I. Associates III, L.P.,
Topeka C.I. Associates, L.P., Albuquerque C.I. Associates, L.P. and C.I.
Nashville, Inc. as of December 31, 1995 and 1994 and for the two years in the
period ended December 31, 1995, incorporated by reference in this Joint Proxy
Statement/Prospectus have been audited by Mayer Hoffman McCann L.C.,
independent auditors, as stated in their report with respect thereto and
incorporated herein by reference.
STOCKHOLDER PROPOSALS
Any Patriot REIT stockholder who wishes to submit a proposal for
presentation at Patriot REIT's 1998 Annual Meeting of Stockholders must have
submitted the proposal to Patriot American Hospitality, Inc. not later than
November 24, 1997 for inclusion, if appropriate, in Patriot REIT's proxy
statement and form of proxy relating to its 1998 Annual Meeting.
Any Patriot Operating Company stockholder who wishes to submit a proposal
for presentation at Patriot Operating Company's 1998 Annual Meeting of
Stockholders must have submitted the proposal to Patriot American Hospitality
Operating Company not later than November 24, 1997 for inclusion, if
appropriate, in Patriot American Operating Company's proxy statement and form
of proxy relating to its 1998 Annual Meeting.
Any Wyndham stockholder who wishes to submit a proposal for presentation at
Wyndham's 1998 Annual Meeting of Stockholders (which will be held only if the
Merger has not been consummated prior to the date the meeting is to be held)
must have submitted the proposal to Wyndham Hotel Corporation, 1950 Stemmons
Freeway, Suite 6001, Dallas, Texas 75207, Attention: Shareholder Relations.
Such proposal must have been received not later than December 5, 1997 in order
to be considered for inclusion, if appropriate, in Wyndham's proxy statement
and form of proxy relating to its 1998 Annual Meeting.
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GLOSSARY OF DEFINED TERMS
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Joint Proxy
Statement/Prospectus:
"ACMs" means asbestos-containing materials.
"Acquisition Proposal" has the meaning given it in the Merger Agreement and
set forth in "The Merger Agreement--Certain Covenants--Acquisition Proposals."
"ADA" means the Americans with Disabilities Act of 1990.
"Additional Liberty Investment," as used in the Merger Agreement, means
additional investments by Patriot REIT in the Liberty Portfolio in excess of
$220,000,000 or any action by Patriot REIT that would result in a Liberty
Consolidation.
"Allocated Purchase Price," as used in the Omnibus Purchase and Sale
Agreement, means the purchase price allocated to a Crow Hotel Property in the
Omnibus Purchase and Sale Agreement.
"Amended Pairing Agreement" means the Pairing Agreement, as amended pursuant
to the Pairing Agreement Amendment.
"Anatole Operating Partnership" has the meaning set forth in "Summary--
Interests of Certain Officers, Directors and Stockholders."
"Anatole Partnership" means an entity which owns the Wyndham Anatole Hotel
and in which certain Crow Family Members have ownership interests.
"Ancillary Agreements" means the agreements relating to the transactions
contemplated by the Merger Agreement.
"Antitrust Division" means the Antitrust Division of the Department of
Justice.
"April Merger Agreement" means that certain Agreement and Plan of Merger,
dated as of April 14, 1997, between Old Patriot REIT and Wyndham.
"Assumed Options," as used in the Merger Agreement, means Existing Wyndham
Options which will be assumed by the Patriot Companies.
"Bank of America" means Bank of America National Trust and Savings
Association.
"Base Case" means a scenario, used in Smith Barney's pro forma merger
analysis, which assumes that less than all of Old Patriot REIT's then planned
acquisitions were effected.
"Bay Area" means the San Francisco bay area.
"Bay Meadows" means Bay Meadows Operating Company, the predecessor in
interest of Patriot Operating Company.
"Bedrock" means certain entities affiliated with Hampstead Group L.L.C.
Bedrock is a significant stockholder of Wyndham.
"Beneficial Ownership" has the meaning given it in the Restated Charters and
set forth in "Description of Capital Stock--Certain Provisions of the Restated
Charters and Restated Bylaws--Restrictions on Ownership and Transfer."
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"Beneficiary" means a charitable beneficiary of the Trust, to be designated
pursuant to the terms of the Pairing Agreement.
"Borders Lease" has the meaning set forth in "Unaudited Pro Forma Financial
Statements--Patriot REIT and Patriot Operating Company--Introduction to Pro
Forma Financial Statements."
"Cal Jockey" means California Jockey Club, a Delaware corporation, the
predecessor in interest of Patriot REIT.
"Cal Jockey Agreement" means the Agreement and Plan of Merger, dated as of
February 24, 1997, among Old Patriot REIT, the Patriot REIT Partnership, Cal
Jockey and Bay Meadows.
"Cal Jockey Merger" means the merger, on July 1, 1997, of Patriot REIT with
Cal Jockey, with Cal Jockey as the surviving company (which changed its name
to Patriot American Hospitality, Inc.).
"Case 1 and Case 2" have the meanings set forth in "The Merger and
Subscription--Opinions of Wyndham's Financial Advisors--Merrill Lynch--Old
Patriot REIT--Pro Forma Analysis."
"Cash Consideration" means cash, if any, to be received pursuant to Cash
Elections made by Wyndham stockholders and CF Securities.
"Cash Consideration Fair Market Value" means an amount per share equal to
the Exchange Ratio multiplied by the average closing price of a Paired Share
over the five trading days immediately preceding the closing of the Merger.
"Cash Election" means the election by the Wyndham stockholders and CF
Securities to receive cash in lieu of receiving Paired Shares pursuant to the
Merger Agreement and the Stock Purchase Agreement, respectively.
"Cash in Lieu of Preferred Stock Amount" means cash, equal to the Cash
Consideration Fair Market Value for each such share affected, to be paid by
Patriot REIT to CF Securities in lieu of that number of shares of Series A
Preferred Stock that are not issuable as a result of certain REIT
qualification requirements under the Code limiting the number of shares of
Series A Preferred Stock issuable to CF Securities.
"Category 1 Matter" means routine corporate governance matters, such as
approval and retention of independent accountants, the fixing of employee
compensation and other like matters to be considered by the Patriot REIT Board
or the Patriot Operating Company Board.
"Category 2 Matter" means matters, other than Category 1 and 3 Matters and
other than a Change of Control and the removal of the Chairman or Chief
Executive Officer of Patriot REIT or Patriot Operating Company and, after the
third anniversary of the Merger, all other matters (including a Change of
Control), other than the removal of the Chairman or Chief Executive Officer of
Patriot REIT or Patriot Operating Company, to be considered by the Patriot
REIT Board or the Patriot Operating Company Board.
"Category 3 Matter" means matters to be considered by the Patriot REIT Board
or the Patriot Operating Company Board concerning the removal of the Chairman
or Chief Executive Officer of either Patriot REIT or Patriot Operating Company
and, until the third anniversary of the Merger, any proposed action by Patriot
REIT or Patriot Operating Company, as the case may be, that would result in a
Change of Control.
"Cause" has the meaning given it in the Restated Charters and set forth in
"Description of Capital Stock--Certain Provisions of the Restated Charters and
Restated Bylaws--Number of Directors; Removal; Filling Vacancies."
"Certificate of Designation" means the Certificate of Designation for the
Series A Preferred Stock.
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"CF Securities " means CF Securities, L.P., the principal stockholder of
Wyndham.
"Change in Control" has the meaning given it in the Cooperation Agreement
and set forth in "Description of Capital Stock--The Cooperation Agreement--
Corporate Matters Categories."
"Chase" means The Chase Manhattan Bank.
"CHC Hotels" has the meaning set forth in "Unaudited Pro Forma Financial
Statements--Patriot REIT and Patriot Operating Company--Introduction to Pro
Forma Financial Statements--Businesses Acquired."
"CHCI" means CHC International, Inc.
"CHCI Merger" means the merger of the hospitality-related businesses of CHCI
with and into Patriot Operating Company.
"CHCI Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 30, 1997, between Patriot REIT, Patriot Operating Company and CHCI.
"CHCI Shares" means shares of CHCI common stock, par value $.005 per share.
"CHC Lease Partners" means CHC Lease Partners, Inc.
"CHRB" means the California Horse Racing Board.
"Claim" has the meaning given it in the Merger Agreement and set forth in
"The Merger Agreement--Indemnification."
"Closing Date" means the closing date of the Merger.
"Closing Price," as used in the Merger Agreement, has the meaning given it
in the Restated Charters and set forth in "Description of Capital Stock--
Certain Provisions of the Restated Charters and Restated Bylaws--Restrictions
on Ownership and Transfer."
"ClubHouse" means ClubHouse Hotels, Inc., a Delaware corporation.
"Code" means the Internal Revenue Code of 1986, as amended.
"Combined Lessees" means all of the Lessees except CHC Lease Partners, PAH
RSI Lessee and Grand Heritage Leasing, L.L.C.
"Commission" means the Securities and Exchange Commission.
"Company A," "Company B" and "Company C" have the meanings set forth in "The
Merger and Subscription--Background of the Merger."
"Comparative Companies" has the meaning set forth in "The Merger and
Subscription--Opinion of Financial Advisor to the Patriot Companies--Selected
Comparative Public Companies Analysis."
"Competitive Brand," as used in the Merger Agreement, means any other brand
name that would be competitive with Wyndham's brand.
"Constructive Ownership" has the meaning given it in the Restated Charters
and set forth in "Description of Capital Stock--Certain Provisions of the
Restated Charters and Restated Bylaws--Restrictions on Ownership and
Transfer."
"Contemplated Transactions" has the meaning set forth in "The Merger and
Subscription--Opinions of Wyndham's Financial Advisors--Merrill Lynch."
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"Cooperation Agreement" means the Cooperation Agreement to be entered into
between Patriot REIT and Patriot Operating Company in connection with the
Merger.
"Cooperation Committee" means a cooperation committee that shall consider
and propose the agenda listing the matters to be considered at any joint
meeting of the Boards of Directors of Patriot REIT and Wyndham International.
"Crow Assets" means 11 full-service Wyndham brand hotels with 3,072 rooms to
be acquired by the Patriot REIT Partnership pursuant to the Omnibus Purchase
and Sale Agreement and the Underlying Purchase and Sale Agreements with the
Crow Family Entities.
"Crow Assets Acquisition" means the acquisition of the Crow Assets by the
Patriot REIT Partnership pursuant to the Omnibus Purchase and Sale Agreement
and the Underlying Purchase and Sale Agreements with the Crow Family Entities.
"Crow Family Entities" means the partnerships which have contracted to sell
the Crow Assets to the Patriot REIT Partnership pursuant to the Omnibus
Purchase and Sale Agreement and the Underlying Purchase and Sale Agreements,
which partnerships are owned by certain Crow Family Members, certain members
of Wyndham Senior Management and others.
"Crow Family Members" means Mr. and Mrs. Trammell S. Crow, various
descendants of Mr. and Mrs. Trammell S. Crow and various corporations,
partnerships, trusts and other entities beneficially owned or controlled by
such persons.
"Crow Hotel Properties" means the following 11 full service Wyndham brand
hotels with a combined total of 3,072 rooms, located throughout the United
States and owned by the Crow Family Entities: the Wyndham Bel Age Hotel, the
Wyndham Franklin Plaza Hotel, the Wyndham La Guardia Garden Hotel, the Wyndham
Milwaukee Theatre District Hotel, the Wyndham Northwest Chicago Hotel, the
Wyndham Las Colinas Garden Hotel, the Wyndham Novi Garden Hotel, the Wyndham
Pleasanton Garden Hotel, the Wyndham Wood Dale Garden Hotel, the Wyndham
Riverfront Hotel and the Wyndham Palm Springs Hotel.
"Crow Interest," as used in the Omnibus Purchase and Sale Agreement, means
an Offer Property or a direct or indirect interest in a Crow Family Entity
owning an Offer Property.
"Crow Ownership Threshold" means with respect to the Cooperation Agreement,
the beneficial ownership of at least five percent (5%) of the lesser of (x)
the sum of (i) the number of then outstanding paired shares of Patriot REIT
Common Stock and Patriot Operating Company Common Stock and (ii) the number of
then outstanding shares of unpaired preferred stock of Patriot REIT, or (y)
the sum of (i) the number of paired shares outstanding immediately after the
Merger and the number of shares of unpaired preferred stock of Patriot REIT
outstanding immediately after the Merger.
"Current Ownership Limit" means the current 9.8% threshold of beneficial
ownership of Equity Stock of Patriot REIT.
"Deficit Act" means the Deficit Reduction Act of 1984.
"Delaware Court" means the Delaware Court of Chancery.
"Demand Registration" means registration for sale, by Patriot REIT and
Wyndham International, of Registrable Securities pursuant to demand by any
Registration Rights Holder pursuant to the Registration Rights Agreement.
"Designee" has the meaning given it in the Voting Agreements and set forth
in "Certain Related Agreements--Voting Agreements--Director Nominations."
"DGCL" means the Delaware General Corporation Law.
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"Direct Placement Closing Price" means the closing price of a Paired Share
on the trading day immediately prior to the date of settlement of the
PaineWebber Direct Placement.
"Direct Placement Purchase Price" means the purchase price per Paired Share
in the PaineWebber Direct Placement.
"Earnout NOI," as used in the Omnibus Purchase and Sale Agreement, means,
with respect to a Crow Hotel Property, the amount by which actual fiscal year
1999 gross revenues from hotel operations exceed the aggregate of, without
duplication, (a) all operating expenses of such Crow Hotel Property accrued
during such period, including amounts payable to such Crow Hotel Property's
manager pursuant to the applicable management contract for such Crow Hotel
Property, (b) fixed charges paid during such period and (c) an allowance of 4%
of gross revenues for capital expenditures.
"Earnout Payments," as used in the Omnibus Purchase and Sale Agreement,
means certain additional payments for the Earnout Properties.
"Earnout Properties," as used in the Omnibus Purchase and Sale Agreement,
means the Wyndham Riverfront Hotel, located in New Orleans, Louisiana and the
Wyndham La Guardia Garden Hotel, located in East Elmhurst, New York.
"EBITDA" means earnings before interest expense, income taxes, depreciation
and amortization.
"Effective Time" means the time at which the Merger becomes effective.
"Election Date" means the date which is two business days prior to the
closing of the Merger or such other date as may be agreed to by Patriot REIT
and Wyndham.
"EPS" means earnings per share.
"Equity Stock" means, at any time, the collective outstanding shares of any
class or series of capital stock of either of the Patriot Companies.
"ESAs" means environmental site assessments.
"Evaluation Material" has the meaning given it in the Old Patriot REIT
Confidentiality Agreement.
"Excess Paired Shares" means those Paired Shares which would cause the
applicable ownership limit of Paired Shares to be exceeded.
"Excess Share Provisions" means provisions contained in the Restated
Charters that limit the number of Paired Shares which may be beneficially
owned by any person or entity.
"Excess Stock" means excess stock, par value $.01 per share, of Patriot REIT
and Wyndham International into which Excess Paired Shares shall be
automatically converted.
"Excess UBTI" means that portion of the REIT OP Preferred Units holders'
distributive share of Patriot REIT Partnership taxable income which consists
of UBTI and exceeds 20%.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Agent" means American Stock Transfer & Trust Company.
"Exchange Fund," as used in the Merger Agreement, means certificates for
shares of Patriot REIT Common Stock, cash, certificates for Merger Subscribed
Shares and cash in lieu of fractional paired shares to be deposited with the
Exchange Agent.
"Exchange Ratio" means the applicable number of Paired Shares into which
each share of Wyndham Common Stock will be converted, after adjustment for any
stock dividend, subdivision, reclassification, recapitalization, stock split
or combination or similar event affecting the Paired Shares or Wyndham Common
Stock.
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"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit sharing trusts and individual retirement accounts.
"Existing Wyndham Options," as used in the Merger Agreement, means
outstanding options to purchase shares of Wyndham Common Stock that are
outstanding immediately prior to the Effective Time.
"Expenses" means Wyndham's documented out-of-pocket fees and expenses.
"Fairness Opinion Fee" means a fee of $250,000 PaineWebber will receive for
delivery of its fairness opinion.
"F, F & E" means furniture, fixtures and equipment.
"FFO" means funds from operations.
"Final Property," has the meaning set forth in "The Omnibus Purchase and
Sale Agreement--Purchase and Sale of Properties."
"Form of Election" means the form for making a Cash Election.
"Franchise Licenses" has the meaning set forth in "Risk Factors--Risks of
Operating Hotels Under Franchise or Brand Affiliations."
"FTC" means the U.S. Federal Trade Commission.
"Full Acquisition Case" means a scenario, used in Smith Barney's pro forma
merger analysis, which assumed that all of Old Patriot REIT's then planned
acquisitions were effected.
"GAH" means GAH-II, L.P., a hotel management company affiliated with CHCI
and Gencom.
"GAH Acquisition" has the meaning set forth in "Summary--The Companies--
Recent Developments."
"GECC" means General Electric Capital Corporation.
"Gencom" means the Gencom American Hospitality group of companies.
"Grand Heritage Acquisition" has the meaning set forth in "Unaudited Pro
Forma Financial Statements--Patriot REIT and Patriot Operating Company--
Introduction to Pro Forma Financial Statements."
"Greenspoint Agreement," as used in the Omnibus Purchase and Sale Agreement,
means that certain contribution agreement by and between Houston Greenspoint
Hotel Associates, L.P. and PAH Acquisition Corporation, as assigned to the
Patriot REIT Partnership.
"Greenspoint Lessee" means Crow Hotel Lessee, Inc., a Texas corporation.
"Greenspoint Partner," as used in the Omnibus Purchase and Sale Agreement,
means each entity that received limited partnership interests in the Patriot
REIT Partnership pursuant to the consummation of the transactions in the
Greenspoint Agreement.
"Hampstead" means The Hampstead Group L.L.C.
"Homegate" means Homegate Hospitality, Inc.
"Hotel Acquisitions" means acquisitions by Patriot REIT of hotel properties
and related assets.
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"Hotel Acquisitions Committee" means a hotel acquisitions committee that
shall analyze, evaluate and consider potential acquisitions by the Patriot
Companies of hotel properties and related assets.
"Hotel Management Operations" means Wyndham's hotel management operations,
which are conducted primarily through WMC.
"Hotel Management Operations Assignment" means the assignment, license or
subcontract of certain assets of Wyndham to the Patriot Operating Company
Partnership.
"HPT" means Hospitality Properties Trust.
"HPT Properties" means those 12 hotels leased by Wyndham which are owned by
an affiliate of HPT.
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of 1976.
"IM Venture" means IM Joint Venture.
"Indebtedness,"as used in the Merger Agreement, means, with respect to any
person, all obligations of such person for borrowed money plus all obligations
of such person under any purchase money mortgages plus any note or bond issued
by such person.
"Indemnified Party" has the meaning given it in the Merger Agreement and set
forth in "The Merger Agreement--Indemnification."
"Initial Offering" means the initial public offering of Old Patriot REIT in
October 1995.
"Initial Patriot Proposal" means the proposal submitted by Old Patriot REIT
on February 3, 1997, to Wyndham and Crow Investment Trust pursuant to which
Old Patriot REIT proposed the merger of Wyndham with and into Patriot
Operating Company following completion of the Cal Jockey Merger.
"Interim Transactions" means proposed acquisitions or other transactions by
Patriot REIT, Patriot Operating Company or Wyndham or any of their respective
subsidiaries prior to the Effective Time.
"Interim Transactions Committee," as used in the Merger Agreement, means
Paul A. Nussbaum (designated by Patriot REIT), William W. Evans III
(designated by Patriot REIT), James D. Carreker (designated by Wyndham) and
Philip J. Ward (designated by Wyndham).
"IRS" means Internal Revenue Service.
"ISIS 2000" means ISIS 2000 Limited Partnership, the entity that provides
centralized reservation services and property management services to Wyndham
brand hotels.
"ISIS Options" means the options granted to Patriot REIT Partnership to
purchase the ISIS Owners' ownership interests in ISIS 2000.
"ISIS Owners" means the owners of ISIS 2000, including certain Crow Family
Members and certain members of Wyndham Senior Management.
"Issuance Notice" means the notice that Patriot REIT must give under the
Cooperation Agreement to Patriot Operating Company of each determination by
Patriot REIT to engage in an Issuance of Paired Equity.
"Issuance of Paired Equity" has the meaning given it in the Cooperation
Agreement and set forth in "Description of Capital Stock--The Cooperation
Agreement--Authority to Issue Paired Equity."
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"Issuance of Unpaired Equity" has the meaning given it in the Cooperation
Agreement and set forth in "Description of Capital Stock--The Cooperation
Agreement--Authority to Issue Unpaired Equity."
"Joint Proxy Statement/Prospectus" means this Joint Proxy Statement and
Prospectus and the Annexes hereto.
"LaSalle" means LaSalle Advisors Limited Partnership.
"LaSalle Direct Placement" means the sale of 1,000,000 Paired Shares by the
Patriot Companies to LaSalle pursuant to a letter agreement dated September
30, 1997.
"Lease Termination Agreement" means the agreement by and among the
Greenspoint Lessee and the Patriot REIT Partnership.
"Lenders" means PaineWebber Real Estate, Chase and certain other lenders
party to the Revolving Credit Facility.
"Lessees" means the lessees to which Patriot REIT leases each of its
existing hotels (except the hotels leased to Patriot Operating Company).
"Letter of Transmittal" means a letter of transmittal to be mailed by the
Exchange Agent.
"Liberty Consolidation," as used in the Merger Agreement, means
consolidation of the accounts of the Liberty Portfolio within the accounts of
Patriot REIT.
"Liberty Portfolio," as used in the Merger Agreement, has the meaning set
forth in "The Merger Agreement--Certain Covenants--Liberty Portfolio."
"Look-Through Entity" means a person that is either a trust as described in
Section 401(a) of the Code and exempt from tax under Section 501(a) of the
Code, or a person that is registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" has the meaning given it in the Restated
Charters and set forth in "Description of Capital Stock--Certain Provisions of
the Restated Charters and Restated Bylaws--Restrictions on Ownership and
Transfer."
"Market Price" means, on any date, the average of the Closing Price for the
five consecutive Trading Days ending on such date.
"Maximum Amount" has the meaning given it in the Merger Agreement and set
forth in "The Merger Agreement--Indemnification."
"Maximum Exchange Ratio" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Wyndham International--Pro Forma
Condensed Combined Statement of Operations for the Year Ended December 31,
1996."
"Merger" means the merger of Wyndham with and into Patriot REIT, pursuant to
the Merger Agreement, with Patriot REIT being the surviving company.
"Merger Agreement" means that certain Agreement and Plan of Merger, dated as
of April 14, 1997, between Old Patriot REIT and Wyndham, as ratified by
Patriot REIT pursuant to the Patriot REIT Ratification Agreement, and as
ratified by Patriot Operating Company pursuant to the Patriot Operating
Company Ratification Agreement, and as amended pursuant to the Merger
Agreement Amendment; provided, however, that if the context requires, the term
"Merger Agreement" is intended to refer to the April Merger Agreement for
periods prior to the date of the Merger Agreement Amendment.
"Merger Agreement Amendment" means Amendment No. 1 to Agreement and Plan of
Merger dated as of November 3, 1997 between Patriot REIT, Patriot Operating
Company and Wyndham.
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"Merger Consideration" means the Paired Shares at the Exchange Ratio and the
Cash Consideration that may be received by Wyndham stockholders in the Merger.
"Merger Proposal" means a proposal, to be voted upon at the Patriot REIT
Special Meeting, the Patriot Operating Company Special Meeting, and the
Wyndham Special Meeting, to approve the Merger Agreement, as ratified by
Patriot REIT and Patriot Operating Company pursuant to the Ratification
Agreements, and the Related Transactions, including, without limitation, the
Merger and the Stock Purchase.
"Merger Subscribed Shares" means the shares of Patriot Operating Company
Common Stock to be issued to the stockholders of Wyndham in connection with
the Merger.
"Merger Subscription" means Wyndham's contract, in connection with the
Merger, for Merger Subscribed Shares to be issued directly to Wyndham
stockholders in the Merger in an amount equal to the number of Paired Shares
that will be issued to Wyndham stockholders in the Merger.
"Merger Subscription Agreement" means the Subscription Agreement entered
into between Wyndham and Patriot Operating Company prior to the Effective Time
with respect to the Merger Subscribed Shares.
"Merrill Lynch" means Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Merrill Lynch Opinion" means the Merrill Lynch written opinion dated April
14, 1997, confirming its oral opinion delivered on April 13, 1997, to the
Wyndham Special Committee.
"Met-Doubletree Hotels" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Introduction
to Pro Forma Financial Statements."
"Mill Spring" means Mill Spring Holdings, Inc.
"Milwaukee Consents" means consents which must be obtained from the mortgage
lender and the ground lessor for the purchase of the Milwaukee Hotel.
"Milwaukee Hotel," as used in the Omnibus Purchase and Sale Agreement, means
Wyndham Milwaukee Theatre District Hotel.
"Milwaukee NOI," as used in the Omnibus Purchase and Sale Agreement, means
the amount by which, for the twelve-month period preceding such determination
of Milwaukee NOI, gross revenues from hotel operations exceed the aggregate
of, without duplication, (a) all operating expenses of Milwaukee Hotel accrued
during such period, including amounts payable to Milwaukee Hotel's manager
pursuant to the applicable management contract for Milwaukee Hotel, (b) fixed
charges paid during such period and (c) an allowance of 4% of gross revenues
for capital expenditures.
"Morgan Stanley Call" means the exercise on September 30, 1997 by the
Patriot Companies of the right to call 2,000,033 units of limited partnership
interest in each of the Patriot Partnerships held by The Morgan Stanley Real
Estate Fund, L.P. and certain related entities.
"Mutual Merger Conditions" has the meaning set forth in "Summary--The Merger
Agreement--Conditions to the Merger."
"NAREIT" means the National Association of Real Estate Investment Trusts,
Inc.
"New Business" means any line of business in which Patriot REIT is not
engaged as of the date of the Merger Agreement.
"New Non-Controlled Subsidiaries" means the corporate subsidiaries of
Patriot REIT to which Wyndham's management and franchise contracts, the
Wyndham and ClubHouse proprietary brand names and the Wyndham hotel management
company will be transferred.
"New Patriot Changes" means any changes through the Closing Date concerning
Patriot REIT or any of the Patriot REIT subsidiaries combined, without
duplication, with all other changes concerning Patriot REIT,
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any of the Patriot REIT subsidiaries, Patriot Operating Company, or any of the
Patriot Operating Company subsidiaries.
"New Patriot Material Adverse Effect" means a material adverse effect on the
Patriot Companies and their respective subsidiaries taken as a whole and
determined after the Cal Jockey Merger and prior to the Merger.
"NOI Basket" means 65% of the net operating income attributable to all of
the Crow Hotel Properties.
"Non-Controlled Subsidiaries" means PAH Ravinia, Inc., PAH WindWatch, L.L.C.
and PAH Boulders, Inc.
"Non-Crow Assets Case" means a scenario, used in Smith Barney's pro forma
merger analysis, which assumed that all of Old Patriot REIT's then planned
acquisitions were effected and that the Crow Assets were not acquired in
connection with the Merger.
"NYSE" means the New York Stock Exchange.
"Offering" means the August 1997 public offering by the Patriot Companies of
10,580,000 Paired Shares (including 1,380,000 Paired Shares issued upon
exercise of the underwriters' over-allotment option), with net proceeds (less
underwriter discount and expenses) of approximately $240,795,000.
"Offer Notice," as used in the Omnibus Purchase and Sale Agreement, means
the notice to be delivered to Patriot REIT Partnership if a Crow Family Entity
intends to transfer a Crow Interest.
"Offer Properties," as used in the Omnibus Purchase and Sale Agreement,
means the Wyndham Bristol Hotel and all of the Undelivered Properties under
the Omnibus Purchase and Sale Agreement.
"Old Line of Credit" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Introduction
to Pro Forma Financial Statements."
"Old Patriot REIT" includes Patriot American Hospitality, Inc., a Virginia
corporation, and its subsidiaries and affiliated partnerships.
"Old Patriot REIT Common Stock" means common stock, par value $.01 per
share, of Old Patriot REIT.
"Old Patriot REIT Comparable Companies" means a group of publicly traded
companies that Merrill Lynch deemed to be similar to Old Patriot REIT's
business.
"Old Patriot REIT Selected Companies" means American General Hospitality;
Equity Inns, Inc; Felcor Suite Hotels, Inc; Hospitality Properties Trust;
Innkeepers USA Trust; RFS Hotel Investors Inc.; Starwood Lodging; Sunstone
Hotel Investors, Inc.; and Inston Hotels, Inc.
"Omnibus Purchase and Sale Agreement" means the Omnibus Purchase and Sale
Agreement, dated as of April 14, 1997, between the Patriot REIT Partnership
and the Crow Family Entities.
"Operating Company OP Preferred Units" means preferred OP Units issued by
the Patriot Operating Company Partnership.
"Operating Company Preferred Stock" means the Operating Company Series A
Preferred Stock together with the Operating Company Series B Preferred Stock.
"Operating Company Series A Preferred Stock" means shares of Series A
Redeemable Convertible Preferred Stock, par value $.01 per share, of Patriot
Operating Company.
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"Operating Company Series B Preferred Stock" means shares of Series B
Redeemable Convertible Preferred Stock, par value $.01 per share, of Patriot
Operating Company.
"Operating Partnerships" and "Patriot Partnerships" means Patriot REIT
Partnership together with the Patriot Operating Company Partnership.
"Operators" has the meaning set forth in "Summary--Summary Risk Factors."
"OP Units" means the units of partner interests in the Operating
Partnerships.
"Owned Real Estate," as used in the Merger Agreement, means real estate
owned or leased by the Patriot REIT Partnership.
"Ownership Limit" has the meaning set forth in "Proposals to Approve the
Amendment and Restatement of the Patriot REIT and Patriot Operating Company
Charters."
"PAH Boulders" means PAH Boulders, Inc.
"PAH LP" means PAH LP, Inc., a wholly owned subsidiary of Patriot REIT.
"PAH GP" means PAH GP, Inc., a wholly owned subsidiary of Patriot REIT.
"PAH Ravinia" means PAH Ravinia, Inc.
"PAH RSI Lessee" means PAH RSI, LLC, a limited liability company.
"PAH WindWatch" means PAH WindWatch, LLC.
"PaineWebber" means PaineWebber Incorporated.
"PaineWebber Direct Placement" means the sale of 1,000,033 Paired Shares by
the Patriot Companies to PaineWebber pursuant to a letter agreement dated
September 30, 1997.
"PaineWebber Land Sale" means the sale by Patriot REIT on July 14, 1997 of
approximately 174 acres of land in San Mateo, California, representing
substantially all of the land which was owned by Cal Jockey prior to the Cal
Jockey Merger, to an affiliate of PaineWebber for a purchase price of
approximately $80,864,000.
"Paine Webber Mortgage Financing" has the meaning set forth in "Unaudited
Pro Forma Financial Statements--Patriot REIT and Patriot Operating Company--
Introduction to Pro Forma Financial Statements."
"PaineWebber Opinion" means a written opinion delivered by PaineWebber on
July 24, 1997, to the Boards of Directors of Patriot REIT and Patriot
Operating Company.
"PaineWebber Real Estate" means PaineWebber Real Estate Securities Inc.
"PaineWebber Selected Transactions" means five completed mergers between
publicly-traded lodging companies including (acquiror/target): (i) Doubletree
Corporation/Red Lion Hotels, Inc.; (ii) Doubletree Corporation/RFS, Inc.;
(iii) Interstate Hotels Company/Trust Leasing, Inc.; (iv) Extended Stay
America, Inc./Studio Plus Hotels, Inc.; and (v) FelCor Suite Hotels,
Inc./Crown Sterling Suites.
"Paired Equity Officer/Director" means one or more officers of Patriot REIT
designated by Patriot REIT to serve as a "Paired Equity Officer/Director"
pursuant to the Cooperation Agreement.
"Paired Shares" means paired shares of Patriot REIT Common Stock and Patriot
Operating Company Common Stock.
"Pairing Agreement" means the Pairing Agreement, dated February 17, 1983, as
amended, between Patriot REIT and Patriot Operating Company.
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"Pairing Agreement Amendment" means the contemplated amendment of the
Pairing Agreement.
"Pairing Agreement Amendment Proposal" means the proposal, to be voted upon
at the Patriot REIT Special Meeting and the Patriot Operating Company Special
Meeting, to amend the Pairing Agreement.
"Palm Springs," as used in the Omnibus Purchase and Sale Agreement, means
the Wyndham Palm Springs Hotel.
"Participating Leases" means the separate participating leases pursuant to
which Patriot REIT leases each of its existing hotels, except the Crowne Plaza
Ravinia and the Marriott WindWatch, to the lessees and to Patriot Operating
Company.
"Participating Note" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Introduction
to Pro Forma Financial Statements."
"Patriot American" means the Patriot American group of companies.
"Patriot Average Closing Price" means the average closing price of a Paired
Share as reported on the NYSE over the 20 trading days immediately preceding
the fifth business day prior to the Wyndham Special Meeting.
"Patriot Charter Amendment Proposals" means the Patriot REIT Charter
Amendment Proposal and the Patriot Operating Company Charter Amendment
Proposal.
"Patriot Charters" means, collectively, the Amended and Restated
Certificates of Incorporation of Patriot REIT and Patriot Operating Company,
currently in effect as of the date of this Joint Proxy Statement/Prospectus.
"Patriot Companies" means Patriot REIT and Patriot Operating Company prior
to the Merger, and Patriot REIT and Wyndham International after the Merger.
"Patriot Expenses" means the administrative and operating costs and expenses
incurred by the Patriot REIT Partnership, as well as the administrative costs
and expenses of Patriot REIT, PAH GP and PAH LP.
"Patriot General Partner" means Patriot REIT Partnership's general partner,
PAH GP.
"Patriot Notice Period" means the period no later than the tenth business
day following the expiration of the Wyndham Notice Period.
"Patriot Operating Company" means Patriot American Hospitality Operating
Company, a Delaware corporation formerly known as "Bay Meadows Operating
Company" and, where the context requires, the Patriot Operating Company
Partnership and their subsidiaries prior to the Merger.
"Patriot Operating Company Board" means the Board of Directors of Patriot
Operating Company.
"Patriot Operating Company Bylaws" means the Amended and Restated Bylaws of
Patriot Operating Company.
"Patriot Operating Company Charter" means the Amended and Restated
Certificate of Incorporation of Patriot Operating Company.
"Patriot Operating Company Charter Amendment Proposal" means a proposal, to
be voted upon at the Patriot Operating Company Special Meeting, to amend and
restate the Patriot Operating Company Charter.
"Patriot Operating Company Common Stock" means common stock, par value $.01
per share, of Patriot Operating Company.
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"Patriot Operating Company Partnership" means Patriot American Hospitality
Operating Partnership, L.P., a subsidiary of Patriot Operating Company.
"Patriot Operating Company Ratification Agreement" means that certain
Ratification Agreement, dated as of July 24, 1997, whereby Patriot Operating
Company ratified the Merger Agreement.
"Patriot Operating Company Special Meeting" means the special meeting of
stockholders of Patriot Operating Company to be held at the Wyndham Anatole
Hotel, on December 12, 1997, at 10:30 a.m., local time (including any and all
adjournments and postponements thereof).
"Patriot Operating Company Subsidiaries," means any of the BMOC Subsidiaries
as that term is defined in the Merger Agreement.
"Patriot Record Date" means November 12, 1997.
"Patriot REIT" means Patriot American Hospitality, Inc., a Delaware
corporation, formerly known as "California Jockey Club" and, where the context
requires, PAH GP, PAH LP, the Patriot REIT Partnership and their subsidiaries.
"Patriot REIT Board" means the Board of Directors of Patriot REIT.
"Patriot REIT Bylaws" means the Amended and Restated Bylaws of Patriot REIT.
"Patriot REIT Charter" means the Amended and Restated Certificate of
Incorporation of Patriot REIT.
"Patriot REIT Charter Amendment Proposal" means a proposal, to be voted upon
at the Patriot REIT Special Meeting, to amend and restate the Patriot REIT
Charter.
"Patriot REIT Common Stock" means the common stock, par value $.01 per
share, of Patriot REIT.
"Patriot REIT Confidentiality Agreement" means that certain letter agreement
dated January 27, 1997 between Old Patriot REIT and Wyndham relating to the
provision of Evaluation Material by Wyndham to Patriot REIT.
"Patriot REIT Limited Partners" means Patriot REIT Partnership's limited
partners.
"Patriot REIT Merger Conditions" means conditions which must be fulfilled or
waived, at or prior to the Closing Date, before Patriot REIT is obligated to
effect the Merger.
"Patriot REIT Partnership" means Patriot American Hospitality Partnership,
L.P., a subsidiary of Patriot REIT.
"Patriot REIT Partnership Agreement" means the partnership agreement of
Patriot REIT Partnership, as amended.
"Patriot REIT Ratification Agreement" means that certain Ratification
Agreement, dated as of July 24, 1997 between Patriot REIT and Wyndham whereby
Patriot REIT ratified the Merger Agreement.
"Patriot REIT Special Meeting" means the special meeting of stockholders of
Patriot REIT to be held at the Wyndham Anatole Hotel, on December 12, 1997, at
9:30 a.m., local time (including any and all adjournments and postponements
thereof).
"Patriot REIT Subsidiaries" means any of the subsidiaries of Patriot REIT
referred to in the Merger Agreement.
"Patriot Special Meetings" means the Patriot REIT Special Meeting and the
Patriot Operating Company Special Meeting.
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"Patriot Transactions Threshold" has the meaning set forth in "The Merger
Agreement--Certain Covenants--Interim Transactions Committee."
"Patriot/WHG Average Closing Price" has the meaning set forth in "The
Companies--Surviving Companies--The WHG Merger."
"Patriot/WHG Exchange Ratio Product" has the meaning set forth in "The
Companies--Surviving Companies--The WHG Transaction."
"Permitted Transferee" means a permitted transferee under the Restated
Charters.
"Piggyback Registration" means the opportunity of the Registration Rights
Holders, pursuant to the Registration Rights Agreement, to register the number
of Registrable Securities they request, in the event that Patriot REIT and
Wyndham International propose to file a registration statement with respect to
Registrable Securities, with the exception of certain types of registrations.
"Post-Merger Management Stockholders" means CF Securities, Paul A. Nussbaum,
William W. Evans III, Leslie V. Bentley, James D. Carreker, Stanley M. Koonce,
Jr. and Anne L. Raymond.
"Preferred Stock" means the preferred stock, par value $.01 per share, of
each of Patriot REIT and Wyndham International.
"Prohibited Owner" means the record holder of the shares of Equity Stock
that are converted into shares of Excess Stock.
"Proposals" means the Merger Proposal, the Pairing Agreement Amendment
Proposal and the Patriot Charter Amendment Proposals.
"Proposing Board" means the Board of Directors submitting any matter at any
meeting of the Patriot REIT Board or the Patriot Operating Company Board.
"Proposing Board Meeting" means a meeting of the Patriot REIT Board or the
Patriot Operating Company Board that is not held jointly.
"Proposing Board Notice" means a notice required to be given by Patriot REIT
or Patriot Operating Company to the other company of the occurrence of a
Proposing Board Meeting and the Category 2 Matters or Category 3 Matters
approved at such meeting.
"Proxy Agreement" means the Proxy Agreement, dated as of April 14, 1997
between Old Patriot REIT, CF Securities and the Wyndham Management
Stockholders.
"Proxy Term" means the period ending on the earliest to occur of (i) the
termination of the Merger Agreement by Wyndham to enter into a Superior
Proposal Agreement, (ii) the Effective Time, (iii) the termination of the
Merger Agreement due to the failure of the Merger to be consummated by
December 16, 1997, or (iv) 30 days after termination of the Merger Agreement
for any other reason except that, in the case of the Wyndham Management
Stockholders only, if the Merger Agreement is terminated on account of a
Superior Proposal Agreement, the Proxy Term will not end until December 16,
1997, if the Merger Agreement is so terminated prior to November 7, 1997, or
30 days following such termination, if such termination occurs on or after
November 7, 1997.
"Racecourse" means the Bay Meadows Racecourse located in San Mateo,
California.
"Ratification Agreements" means the Patriot REIT Ratification Agreement
together with the Patriot Operating Company Ratification Agreement.
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"Recent Acquisitions" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Pro Forma
Financial Statements."
"Recent Transactions" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Pro Forma
Financial Statements."
"Reconsideration Process" means the reconsideration process to be followed
by the Proposing Board and the Responding Board.
"Redemption Rights" has the meaning set forth in "Description of the
Partnership Agreements--Patriot REIT Partnership--Redemption Rights."
"Redemption Value" has the meaning set forth in "Description of Capital
Stock--Patriot Operating Company Series A Preferred Stock and Series B
Preferred Stock."
"Registrable Securities" means Paired Shares received by the Registration
Rights Holders pursuant to the Stock Purchase Agreement and the Merger
Agreement (including Paired Shares that are issuable upon conversion of shares
of Series A Preferred Stock), and which, pursuant to the Registration Rights
Agreement, Patriot REIT and Wyndham International are required, subject to
certain limitations and under certain conditions, to register for sale to the
public.
"Registration Rights Agreement" has the meaning set forth in "Summary--
Interests of Certain Officers, Directors and Stockholders."
"Registration Rights Holders" means CF Securities, Bedrock, and James D.
Carreker, Leslie V. Bentley, Anne L. Raymond and Stanley M. Koonce, Jr.
"Registration Statement" means the Registration Statement on Form S-4 of
which this Joint Proxy Statement/Prospectus is a part.
"REIT" means a real estate investment trust.
"REIT OP Preferred Units" means preferred OP Units issued by the Patriot
REIT Partnership.
"Rejected Property," as used in the Omnibus Purchase and Sale Agreement,
means any of the Crow Hotel Properties for which the relevant Underlying
Purchase and Sale Agreement is terminated by the Patriot REIT Partnership in
the event of a material adverse effect on the operation, value, use,
marketability, financeability or insurability of the applicable Crow Hotel
Property.
"Related Person" means, with respect to the Restated Charters, any person or
entity who beneficially owns (as defined in Rule 13d-3 promulgated under the
Exchange Act) more than 5% of the outstanding shares of capital stock of
Patriot REIT or Wyndham International, as the case may be, and any "affiliate"
or "associate" (as those terms are defined in Rule 12b-2 promulgated under the
Exchange Act).
"Related Transactions" means the transactions contemplated in the Merger
Agreement, including, without limitation, the transactions contemplated by the
Stock Purchase Agreement, but excluding the Crow Assets Acquisition.
"Relief Act" means the Taxpayer Relief Act of 1997.
"Remaining Interest" means the remaining 75% interest in IM Venture which
IFM Partnership has the right, pursuant to a redemption agreement, to redeem
by November 28, 1997 for a cash purchase price of $30 million, subject to
certain adjustments.
"Responding Board" means the Board of Directors responding to the Proposing
Board.
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"Restated Bylaws" means, collectively, the Amended and Restated Patriot REIT
Bylaws and Patriot Operating Company Bylaws, as amended and restated a second
time in connection with the Merger.
"Restated Charters" means, collectively, the Amended and Restated
Certificates of Incorporation of Patriot REIT and Wyndham International, as
amended and restated in connection with the Merger.
"Revised Patriot Proposal" means a revised proposal submitted by Old Patriot
REIT on February 28, 1997, to Wyndham and Crow Investment Trust reflecting the
proposed merger of Wyndham into Patriot REIT, rather than Patriot Operating
Company, following the Cal Jockey Merger.
"Revolving Credit Facility" means that certain revolving credit facility
entered into by the Patriot Companies and the Lenders.
"RSI" means Resort Services, Inc.
"S&P 500" means the Standard & Poor's 500 Index.
"Section 10.3(a)(i) Amount," as used in the Merger Agreement, means an
amount in cash equal to $30,000,000 deposited by Wyndham with the escrow agent
contemplated thereby.
"Section 262" means Section 262 of the DGCL.
"Securities Act" means the Securities Act of 1933.
"Selected Companies" means the Old Patriot REIT Selected Companies together
with the Wyndham Selected Companies.
"Selected Old Patriot REIT Comparable Companies" means a subcategory of Old
Patriot REIT Comparable Companies.
"Selected Transactions" means the PaineWebber Selected Transactions together
with the Smith Barney Selected Transactions.
"Series A Preferred Stock" means the Series A Convertible Preferred Stock,
par value $.01 per share, of Patriot REIT.
"Smith Barney" means Smith Barney Inc.
"Smith Barney Selected Transactions" means the following selected
transactions in the lodging industry (acquiror/target): Hilton Hotels
Corporation/ITT; Marriott International Corp./Renaissance Hotels, Inc.;
Extended Stay America/Studio Plus Hotels, Inc.; Bristol Hotel Company/Certain
U.S. assets of Holiday Inn; Interstate Hotels Company/Trust Leasing Inc.;
Doubletree Corporation/Red Lion Hotels, Inc.; Doubletree Corporation/RFS,
Inc.; TRT Holdings Inc./Omni Hotels Group; FelCor Suite Hotels Inc./Crown
Sterling Suites; The Hampstead Group, Inc./Harvey Hotels/United Inns, Inc.;
and Saudi Prince Al-Waleed/Four Seasons Hotels, Inc.
"Snavely Portfolio" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Introduction
to Pro Forma Financial Statements."
"Special Meetings" means the Patriot REIT Special Meeting, the Patriot
Operating Company Special Meeting, and the Wyndham Special Meeting.
"Standstill Agreement" means that certain Standstill Agreement dated as of
April 14, 1997, by and among Old Patriot REIT and CF Securities.
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"Standstill Term" means the date which is 18 months following the first date
on which any two of Paul A. Nussbaum, James D. Carreker, and Anne L. Raymond
no longer actively serve as senior executive officers of Patriot REIT and/or
Wyndham International.
"Stock Purchase" means the purchase by Patriot REIT of up to 9,447,745
shares of Wyndham Common Stock beneficially owned by CF Securities pursuant to
the Stock Purchase Agreement.
"Stock Purchase Agreement" means that certain Stock Purchase Agreement,
dated as of April 14, 1997, between Old Patriot REIT and CF Securities, the
principal stockholder of Wyndham.
"Stock Purchase Closing" means the closing of the Stock Purchase.
"Stock Purchase Subscription" means CF Securities' subscription for Stock
Purchase Subscribed Shares to be issued directly to CF Securities pursuant to
the Stock Purchase in an amount equal to the number of Paired Shares that will
be issued to CF Securities pursuant to the Stock Purchase.
"Stock Purchase Subscription Agreement" means the Subscription Agreement to
be entered into between CF Securities and Patriot Operating Company prior to
the closing of the Stock Purchase.
"Stock Purchase Subscribed Shares" means shares of Patriot Operating Company
Common Stock to be issued directly to CF Securities in connection with the
Stock Purchase.
"Subscription Notes" has the meaning set forth in "Unaudited Pro Forma
Financial Statements--Patriot REIT and Patriot Operating Company--Pro Forma
Condensed Combined Statement of Operations for the Year Ended December 31,
1996."
"Subscription Ratio" means 5%, the ratio as determined by Wyndham and
Patriot Operating Company as the relative value of a share of Patriot
Operating Company Common Stock compared to the fair market value of a Paired
Share.
"Superior Proposal" means any bona fide Acquisition Proposal, the terms of
which the Board of Directors of Wyndham determines in its good faith judgment,
after receiving advice from a financial advisor of national standing, to be
more favorable to Wyndham's stockholders than the Merger.
"Superior Proposal Agreement" means an agreement, to be executed by Wyndham,
providing for a Superior Proposal.
"Termination Date" means the date which is twelve (12) months after the date
on which the Pairing Agreement is no longer in effect.
"Term Loan" means the $500,000,000 term loan contemplated by the commitment
letter between Patriot REIT, PaineWebber Real Estate and Chase.
"Trading Day" means a day on which the principal national securities
exchange on which the shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if the shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, shall
mean any day other than a Saturday, a Sunday or a day on which banking
institutions in the State of New York are authorized or obligated by law or
executive order to close.
"Transfer Restriction Agreement" means that certain Transfer Restriction
Agreement, dated as of April 14, 1997, between Bedrock and Old Patriot REIT.
"Trust" means a trust to which shares of Excess Stock of Patriot REIT or
Wyndham International, as the case may be, shall be transferred upon the
violation of certain transfer restrictions contained in the Restated Charters.
299
<PAGE>
"Trustee" means the trustee of the Trust to be designated pursuant to the
terms of the Pairing Agreement.
"UBTI" means "unrelated business taxable income" as defined in section
512(a)(1) of the Code.
"UBTI Adjuster" means an additional distribution to which a REIT OP
Preferred Unit holder with Excess UBTI is entitled to, with respect to such
taxable year, from the Patriot REIT Partnership equal to the product of (i)
the Excess UBTI multiplied by (ii) the federal tax rate applicable to the
Excess UBTI.
"Undelivered Property," as used in the Omnibus Purchase and Sale Agreement,
means any Crow Hotel Property (a) that is not a Rejected Property and (b) with
respect to which the conditions of the Patriot REIT Partnership's performance
of its obligations pursuant to the applicable Underlying Purchase and Sale
Agreement shall not have been satisfied or waived as of the closing date of
the Crow Assets Acquisition.
"Underlying Purchase and Sale Agreements" means 11 individual purchase and
sale agreements providing for a number of transactions between the Patriot
REIT Partnership and the Crow Family Entities, including the purchase by the
Patriot REIT Partnership from the Crow Family Entities of the Crow Hotel
Properties.
"Unpaired Equity Committee" means an unpaired equity committee comprised of
directors of Patriot REIT and Wyndham International that shall have the sole
authority under the Cooperation Agreement to authorize and approve any
issuance of unpaired equity by Patriot Operating Company prior to the Merger
and Wyndham International following the Merger.
"Unpaired Shares" has the definition set forth in "Description of Capital
Stock--The Cooperation Agreement."
"U.S. Stockholder" means a holder of Paired Shares that for United States
federal income tax purposes is (i) a citizen or resident of the United States,
(ii) a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof,
(iii) an estate, the income of which is subject to United States federal
income taxation regardless of its source or (iv) a trust, if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust and (v) is not an
entity that has a special status under the Code (such as a tax-exempt
organization).
"Valuation Percentage" means a fraction (expressed as a percentage)
determined by dividing the value for Equity Stock most recently determined
under the Pairing Agreement over the value of a Paired Share most recently
determined under the Pairing Agreement.
"Voting Agreements" means those certain Voting Agreements, dated as of April
14, 1997, by and among Old Patriot REIT and each of the Post-Merger Management
Stockholders.
"Voting Securities" has the meaning set forth in "Description of Capital
Stock--The Cooperation Agreement--Corporate Matters Categories."
"Voting Stock," as used in the Standstill Agreement, means voting securities
or securities convertible into or exchangeable for, or which upon redemption
thereof, could result in CF Securities receiving any voting securities of
Patriot REIT, Wyndham International, Patriot REIT Partnership or Patriot
Operating Company Partnership.
"WEL" means Wyndham Employees, Ltd.
"WEL Distribution" means the distribution, on February 11, 1997, by WEL of
its holdings of Wyndham Common Stock to the participants in WEL.
"WHG" means WHG Resorts & Casinos Inc.
300
<PAGE>
"WHG Common Stock" means shares of WHG common stock, par value $.01 per
share.
"WHG Exchange Ratio" has the meaning set forth in "The Companies--Surviving
Companies--The Proposed WHG Merger."
"WHG Exchange Ratio Product" has the meaning set forth in "The Companies--
Surviving Companies--The Proposed WHG Merger."
"WHG Merger" means the merger of a newly formed, wholly owned subsidiary of
Patriot Operating Company with and into WHG with WHG being the surviving
corporation.
"WHG Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 30, 1997, between Patriot REIT, Patriot Operating Company, Patriot
American Hospitality Operating Company Acquisition Subsidiary and WHG.
"WHG Special Meeting Date" has the meaning set forth in "Summary--Surviving
Companies--Recent Developments."
"WHMC" means Wyndham Hotel Management Corporation.
"WMC" means Wyndham Management Corporation, a wholly owned subsidiary of
Wyndham.
"Wyndham" means Wyndham Hotel Corporation, a Delaware corporation and, where
the context requires, its subsidiaries and predecessors.
"Wyndham Board" means the Board of Directors of Wyndham.
"Wyndham Breakup Fee Events" has the meaning given it in the Merger
Agreement and set forth in "The Merger Agreement--Termination."
"Wyndham Bylaws" means the Amended and Restated Bylaws of Wyndham.
"Wyndham Certificate" means a certificate representing shares of Wyndham
Common Stock.
"Wyndham Charter" means the Amended and Restated Certificate of
Incorporation of Wyndham.
"Wyndham Common Stock" means common stock, par value $.01 per share, of
Wyndham.
"Wyndham Comparable Companies" has the meaning set forth in "The Merger and
Subscription--Opinions of Wyndham's Financial Advisors--Merrill Lynch--
Wyndham--Historical Trading Analysis."
"Wyndham Indemnification Agreements" means indemnification agreements
entered into by Wyndham with the directors, executive officers and certain
other officers of Wyndham, that are parties to the Wyndham Indemnification
Agreements.
"Wyndham Indemnified Party" has the meaning set forth in "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Wyndham--Indemnification and Insurance Arrangements."
"Wyndham Indemnitee" means the directors, executive officers and certain
other officers of Wyndham, that are parties to the Wyndham Indemnified
Agreements.
"Wyndham Indenture" means the indenture relating to the Wyndham Senior
Subordinated Notes.
"Wyndham International" means Patriot Operating Company and, where the
context requires, Patriot Operating Company Partnership and their
subsidiaries, following the Merger.
301
<PAGE>
"Wyndham International Board" means the Board of Directors of Wyndham
International.
"Wyndham International Dissolution Preference" has the meaning given it in
the Certificate of Designation and set forth in "Description of Capital
Stock--Series A Preferred Stock."
"Wyndham Leases" means the leases relating to hotels owned by Wyndham and
leased to third parties.
"Wyndham Management Stockholders" means James D. Carreker, Leslie V.
Bentley, Anne L. Raymond and Stanley M. Koonce, who are parties to the Proxy
Agreement.
"Wyndham Material Adverse Effect" means a material adverse effect on Wyndham
and its subsidiaries taken as a whole.
"Wyndham Merger Conditions" means conditions which must be fulfilled or
waived, at or prior to the Closing Date, before Wyndham is obligated to effect
the Merger.
"Wyndham Notice Period," as used in the Merger Agreement, means the period
of fifteen business days immediately following the date of notice by Patriot
REIT of any determination to make an Additional Liberty Investment.
"Wyndham--OPCO Designee" has the meaning set forth in "Description of
Capital Stock--The Cooperation Agreement--Hotel Acquisitions Committee."
"Wyndham Plan" means Wyndham's Amended and Restated 1996 Long-Term Incentive
Plan.
"Wyndham Record Date" means November 12, 1997.
"Wyndham Revolving Credit Facility" means that certain revolving credit
facility entered into by Wyndham and Bankers Trust Company, as agent for a
group of financial institutions, as amended.
"Wyndham SEC Reports," as used in the Merger Agreement, means Wyndham's
reports filed with the Commission.
"Wyndham Selected Companies" means Marriott International, Inc.; Promus
Hotels Corporation; La Quinta Inns, Inc.; Choice Hotels International, Inc.;
Doubletree Corporation; Interstate Hotels Company; Prime Hospitality Corp.;
Bristol Hotel Company; and Capstar Hotel Company.
"Wyndham Senior Management" means the current executive officers of Wyndham,
as well as one former executive officer of Wyndham.
"Wyndham Senior Subordinated Notes" means the 10 1/2% Senior Subordinated
Notes Due 2006 issued by Wyndham.
"Wyndham Special Committee" means the special committee of the Wyndham
Board.
"Wyndham Special Meeting" means the special meeting of stockholders of
Wyndham to be held at the Wyndham Anatole Hotel, on December 12, 1997, at 8:30
a.m. local time (including any and all adjournments and postponements
thereof).
"Wyndham Stockholders' Agreement" means that certain Stockholders' agreement
among Wyndham and certain Wyndham stockholders dated as of May 24, 1996.
"Wyndham Subsidiary," as used in the Merger Agreement, means any of the
subsidiaries of Wyndham referred to in the Merger Agreement.
302
<PAGE>
"Wyndham Termination Notice," as used in the Merger Agreement, means written
notice by Wyndham of its desire to terminate the merger Agreement as a result
of an Additional Liberty Investment.
"Wyndham Transactions" means, collectively, the Merger, the Related
Transactions and the Crow Assets Acquisition.
"Wyndham Transactions Threshold," as used in the Merger Agreement, means,
with the exception of the acquisition of ClubHouse, Interim Transactions by
Wyndham or any of the Wyndham Subsidiaries involving a proposed purchase price
(inclusive of any indebtedness to be assumed in connection therewith) (A)
exceeding $50,000,000 individually, or (B) that, when taken together with all
previous Interim Transactions entered into by Wyndham or any of the Wyndham
Subsidiaries between the date of the Merger Agreement and the Effective Time,
would exceed $50,000,000.
303
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners
Crow Family Hotel Partnerships:
We have audited the accompanying combined balance sheets of Crow Family
Hotel Partnerships (identified in Note 1) (collectively the "Partnerships") as
of December 31, 1996 and 1995 and the related combined statements of
operations, partners' deficit and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Partnerships' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships, which are to be acquired by Patriot American Hospitality, Inc.,
and may not necessarily reflect the financial position, results of operations
and cash flows of the Partnerships that might have resulted had they actually
operated as a stand-alone entity.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Partnerships as of December 31, 1996 and 1995 and the combined results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Dallas, Texas
September 17, 1997
F-1
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31
------------------ JUNE 30
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 1,277 $ 2,127 $ 5,815
Cash, restricted............................. 2,532 3,058 1,981
Accounts receivable, less allowance of $103
and $96 in 1995 and 1996, respectively...... 4,660 6,118 6,071
Inventories.................................. 925 946 895
Prepaid expenses and other................... 1,102 1,359 1,141
-------- -------- --------
Total current assets....................... 10,496 13,608 15,903
-------- -------- --------
Cash, restricted for noncurrent assets......... 4,093 2,764 1,194
Property and equipment, net.................... 150,617 162,908 165,516
Other assets................................... 8,285 8,230 8,883
-------- -------- --------
Total assets............................... $173,491 $187,510 $191,496
======== ======== ========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses........ $ 16,673 $ 17,256 $ 14,868
Due to affiliates............................ 4,278 384 3,739
Due to operator.............................. 1,925 2,778 1,346
Advance deposits............................. 759 1,163 1,017
Current portion of long-term debt (net of
discount of $1,779 and $1,746 in 1995 and
1996) and capital lease obligations......... 1,827 67,996 52,868
-------- -------- --------
Total current liabilities.................. 25,462 89,577 73,838
-------- -------- --------
Advances from partners......................... 4,679 4,911 4,754
Long-term debt and capital lease obligations... 202,104 146,239 163,762
-------- -------- --------
206,783 151,150 168,516
-------- -------- --------
Commitments and contingencies
Partners' deficit.............................. (58,754) (53,217) (50,858)
-------- -------- --------
Total liabilities and partners' deficit.... $173,491 $187,510 $191,496
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-2
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30
-------------------------- -------------------------
1994 1995 1996 1996 1997
-------- ------- ------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Rooms................. $ 42,588 $50,652 $64,362 $ 31,155 $ 38,791
Food and beverage..... 30,275 33,217 35,137 17,075 19,809
Telephone............. 2,413 3,464 4,386 2,142 2,269
Other departmental
revenues............. 2,178 2,821 3,070 1,523 1,641
Other income.......... 663 1,190 1,753 683 978
-------- ------- ------- ----------- ------------
78,117 91,344 108,708 52,578 63,488
-------- ------- ------- ----------- ------------
Operating costs and
expenses:
Rooms................. 10,364 12,587 15,078 7,343 8,539
Food and beverage..... 21,260 24,010 25,937 12,535 14,482
Telephone............. 1,052 1,412 1,608 797 874
Lease expense......... 1,964 1,982 1,993 1,307 1,033
Management fees....... 3,238 3,951 5,349 1,716 2,329
Energy costs.......... 3,338 4,151 4,351 2,074 2,408
Property insurance and
taxes................ 2,892 3,462 3,783 1,967 2,077
General and
administrative....... 15,841 19,065 22,309 10,776 12,096
Depreciation and
amortization......... 5,877 6,569 8,136 3,410 4,792
Other expenses........ 2,359 2,483 3,066 1,257 1,875
-------- ------- ------- ----------- ------------
68,185 79,672 91,610 43,182 50,505
-------- ------- ------- ----------- ------------
Operating income.... 9,932 11,672 17,098 9,396 12,983
Interest income......... 85 179 76 -- --
Interest expense........ (16,182) (18,213) (19,008) (8,841) (10,356)
-------- ------- ------- ----------- ------------
Net income (loss)....... $ (6,165) $(6,362) $(1,834) $ 555 $ 2,627
======== ======= ======= =========== ============
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-3
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF PARTNERS' DEFICIT
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1993.......................................... $(85,133)
Capital contributions............................................... 13,074
Contribution of note payable........................................ 11,608
Capital distributions............................................... (610)
Net loss............................................................ (6,165)
--------
Balance at December 31, 1994.......................................... (67,226)
Capital contributions............................................... 16,379
Capital distributions............................................... (1,545)
Net loss............................................................ (6,362)
--------
Balance at December 31, 1995.......................................... (58,754)
Capital contributions............................................... 7,740
Capital distributions............................................... (369)
Net loss............................................................ (1,834)
--------
Balance at December 31, 1996.......................................... (53,217)
Capital contributions (unaudited)................................... 2,167
Capital distributions (unaudited)................................... (2,435)
Net income (unaudited).............................................. 2,627
--------
Balance at June 30, 1997 (unaudited).................................. $(50,858)
========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-4
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31 ENDED
--------------------------- JUNE 30,
1994 1995 1996 1997
-------- -------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................... $ (6,165) $ (6,362) $(1,834) $ 2,627
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization..... 5,877 6,569 8,136 4,792
Amortization of loan cost......... 368 686 521 497
(Increase) decrease in accounts
receivable....................... (2,423) 1,393 (1,458) 47
(Increase) decrease in
inventories...................... (242) 24 (21) 51
(Increase) decrease in prepaid
expenses......................... (65) 215 (257) 218
Decrease (increase) in other
assets........................... 416 (1,465) (596) (1,791)
Increase (decrease) in accounts
payable and accrued expenses..... 3,803 1,934 583 (2,388)
Net (decrease) increase in due to
affiliates....................... 181 (2,881) (3,894) 3,355
Increase (decrease) in due to
operator......................... 147 628 853 (1,432)
Increase (decrease) in advance
deposits......................... 3 188 404 (146)
(Increase) decrease in restricted
cash............................. (423) 3,552 (526) 1,077
-------- -------- ------- -------
Net cash provided by operating
activities..................... 1,477 4,481 1,911 6,907
-------- -------- ------- -------
Cash flow from investing activities:
Property and equipment additions.... (27,512) (37,295) (20,297) (6,759)
(Increase) decrease in cash
restricted for noncurrent assets... (1,056) (2,561) 1,329 1,570
-------- -------- ------- -------
Net cash used in investing
activities..................... (28,568) (39,856) (18,968) (5,189)
-------- -------- ------- -------
Cash flows from financing activities:
Net (increase) decrease in advances
from partners...................... (668) 970 232 (157)
Proceeds from long-term debt........ 22,256 21,773 13,249 3,705
Repayments of long-term debt and
capital lease obligations.......... (6,487) (2,601) (2,945) (1,310)
Partners' contributions............. 13,074 16,379 7,740 2,167
Partners' distributions............. (610) (1,545) (369) (2,435)
Other............................... (902) -- -- --
-------- -------- ------- -------
Net cash provided by financing
activities..................... 26,663 34,976 17,907 1,970
-------- -------- ------- -------
Increase (decrease) in cash and cash
equivalents.......................... (428) (399) 850 3,688
Cash and cash equivalents at beginning
of year.............................. 2,104 1,676 1,277 2,127
-------- -------- ------- -------
Cash and cash equivalents at end of
year................................. $ 1,676 $ 1,277 $ 2,127 $ 5,815
======== ======== ======= =======
Supplemental cash flow information:
Cash paid for interest.............. $ 14,602 $ 17,210 $19,751 $ 9,806
Noncash activity:
Capital lease obligations........... 265 259 -- --
Interest added to principal of notes
payable............................ 401 448 1,161 --
Contribution of note payable........ 11,608 -- -- --
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
F-5
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. COMBINED PARTNERSHIPS DESCRIPTION AND BASIS OF PRESENTATION:
The accompanying combined financial statements include the accounts of 10
hotel partnerships (the "Partnerships") which are owned by various
corporations, partnerships and joint ventures. These partnerships are
beneficially owned or controlled by various members of the family of Trammell
Crow. The Partnerships along with Wyndham Hotel Corporation ("WHC"), which
manages the 10 hotels, are being considered for acquisition by Patriot
American Hospitality, Inc., a publicly traded real estate investment trust
("REIT").
The accompanying combined financial statements were prepared to present the
balance sheets and related results of operations and cash flows of the
Partnerships and may not necessarily reflect the financial position, results
of operations and cash flows of the Partnerships that might have resulted had
they actually operated as a stand-alone entity.
The accounts of the Partnerships and related hotels consist of the following
hotel entities:
<TABLE>
<CAPTION>
PARTNERSHIPS HOTELS
------------ ------
<S> <C>
Hotel Bel Age Associates, L.P. Wyndham Bel Age
Franklin Plaza Associates Wyndham Franklin Plaza
Itasca Hotel Company Wyndham Northwest Chicago
WHC-LG Hotel Associates, L.P. Garden Hotel at LaGuardia Airport
CLC Limited Partnership Wyndham Garden Hotel-Las Colinas
Novi Garden Hotel Associates Wyndham Garden Hotel-Novi
Pleasanton Hotel Associates, Ltd. Wyndham Garden Hotel-Pleasanton
Wood Dale Garden Hotel Partnership Wyndham Garden Hotel-Wood Dale
Convention Center Boulevard Hotel, Limited Wyndham Riverfront
Hotel and Convention Center Partners I-XI, Wyndham Palm Springs
Ltd.
</TABLE>
Interim Financial Statements
The interim financial statements have been prepared by the Partnerships
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations; nevertheless, management believes that
the disclosures herein are adequate to prevent the information presented from
being misleading. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial position of the Partnerships with respect to the results of their
operations for the interim periods from January 1, 1996 to June 30, 1996, and
from January 1, 1997 to June 30, 1997, have been included herein. The results
of operations for the interim periods are not necessarily indicative of the
results for the full year.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amount of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
F-6
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Partnerships to
concentration of credit risk consist principally of cash investments. The
Partnerships maintain cash and cash equivalents in accounts with major
financial institutions in excess of the amount insured by the Federal Deposit
Insurance Corporation. Management believes credit risk related to these
deposits is minimal.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash and cash equivalents
For purposes of reporting cash flows, all highly liquid debt instruments
with original maturities of three months or less are considered to be cash
equivalents.
Restricted cash consists of amounts in escrow for the payment of property
taxes and interest. Cash restricted for noncurrent assets consists of a
reserve for fixed asset repairs and replacements and hotel renovations.
Inventories
Inventories consisting of food, beverage, china, linen, glassware,
silverware, uniforms and supplies are stated at cost which approximates
market, with cost determined using the first-in, first-out method.
Property and Equipment
Buildings and site improvements are carried at cost and are depreciated
using the straight-line method over 40 and 20 years, respectively. Furniture
and equipment are recorded at cost and are depreciated using the straight-line
method over their estimated useful lives of approximately 5 years. Normal
repairs and maintenance are charged to expense as incurred.
Investment in property is recorded at cost, except when it has been
determined that the property has sustained a permanent impairment in value. At
such time, a write-down is recorded to reduce the property to its estimated
recoverable amount. Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable.
Cost of assets under construction are reported as construction in progress.
Construction in progress is not depreciated until the construction is
completed and the related assets are in use. Interest and taxes incurred
during the construction period are capitalized as part of the building cost.
Other Assets
Other assets consist primarily of unamortized loan costs, capitalized
organization costs and capitalized lease acquisition costs. Other assets are
stated at cost, except when it has been determined that the asset has
sustained a permanent impairment in value. These costs are amortized using the
straight-line method over the following periods:
<TABLE>
<S> <C>
Loan costs Over the term of the loan
Organization
costs 60 months
Preopening
expenses 12 months
Lease acquisition
costs Over the term of the lease
</TABLE>
F-7
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Income Taxes
The Partnerships are not taxable entities and the results of their
operations are included in the tax returns of the partners. The Partnerships'
tax returns and the amount of allocable income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes to income or loss, the tax liability of the partners could
be changed accordingly.
Revenue Recognition
Room, food and beverage, telephone and other revenues are recognized when
earned.
Self-Insurance
The Partnerships are self-insured for various levels of general liability,
workers' compensation and employee medical coverages. The general and auto
liability premiums are paid to a related party who maintains a loss reserve
fund. Workers' compensation premiums are paid to an independent insurance
company. The Partnerships' workers' compensation insurance is subject to a
"retro adjustment" which could result in additional premiums or a refund of
premiums based on actual claims settled by the insurance company.
3. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Land................................................... $ 17,575 $ 20,924
Buildings.............................................. 133,761 147,881
Furniture, fixtures and equipment...................... 17,854 23,065
Construction in progress............................... 12,329 8,345
-------- --------
181,519 200,215
Less accumulated depreciation.......................... (30,902) (37,307)
-------- --------
$150,617 $162,908
======== ========
</TABLE>
Substantially all the Partnerships' property and equipment are pledged as
collateral for mortgage notes payable.
4. MANAGEMENT AGREEMENTS AND RELATED PARTY TRANSACTIONS:
The Partnerships entered into management agreements with a wholly-owned
subsidiary of Wyndham Hotel Corporation (the "Operator"). These management
agreements, having terms ranging from 10 to 22 years, provide for base
management fees and chain service fees ranging from 2.5% to 5% of gross
revenues, plus incentive fees ranging from 14% to 25% of income after fixed
charges or excess cash, as defined in the respective management agreements.
The Partnerships incurred incentive management fees of $509,000, $870,000 and
$1,638,000, during the years ended December 31, 1994, 1995 and 1996,
respectively. In addition, the agreements require the Partnerships to pay a
marketing contribution to the Operator equal to 1.5% of monthly room revenues.
The Partnerships made marketing contributions of $639,000, $760,000 and
$965,000 in 1994, 1995 and 1996, respectively. Due to operator represents
management fees, chain service fees and other expenses payable to the
Operator.
F-8
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Partnerships receive services from and provide services to affiliates,
which are reimbursed in the normal course of business. In 1994, 1995 and 1996,
the Partnerships reimbursed the Operator for services such as administrative,
tax, legal, accounting, finance, risk management, sales and central
reservations totaling $1,132,000, $1,409,000 and $1,404,000, respectively.
Certain partnerships, in the normal course of business, have made advances
to or received advances from (including operating deficit loans) the partners
and their affiliates. Such amounts are classified as "Due to affiliates" in
the accompanying combined financial statements and accrue interest at rates
ranging from 2.62% to 10%. Interest expense of $222,000, $305,000 and $303,000
in 1994, 1995 and 1996, respectively, on advances from partners and affiliates
is included in other accrued expenses in the accompanying combined financial
statements. No due dates have been specified for these advances and such
advances may be repaid from available cash flow.
Pursuant to one of the partnership agreements, the general partner of the
partnership earns an annual management fee for services rendered in connection
with the business of the partnership equal to 1% of gross revenues ($207,000,
$220,000 and $233,000 in 1994, 1995 and 1996, respectively). Unpaid general
partner management fees are classified as "Due to affiliates" in the
accompanying combined financial statements.
The Partnerships participate in a centralized cash management system with
affiliates who are excluded from these combined financial statements. Gross
receipts from the hotels are deposited into the centralized cash management
system, from which operating expenses and other disbursements are paid. The
net position with the pool is reported as "Due to affiliates" in the
accompanying combined financial statements.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1996
------- -------
<S> <C> <C>
Accounts payable.......................................... $ 3,943 $ 4,351
Taxes..................................................... 2,417 2,433
Accrued interest.......................................... 6,716 5,973
Payroll and related costs................................. 2,230 2,628
Other..................................................... 1,367 1,871
------- -------
$16,673 $17,256
======= =======
</TABLE>
F-9
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. LONG-TERM DEBT:
Substantially all of the hotel property is pledged as collateral for long-
term debt consisting of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1996
-------- --------
<S> <C> <C>
Mortgage note, bearing interest at 10% with monthly
payments of interest only, maturing August 1, 1997. The
note was extended until December 31, 1997 for a fee of
$33,333................................................. $ 11,308 $ 11,308
Mortgage note, bearing interest at 10%, with monthly
payments of interest only at 5%, pay rate increasing 1%
per year (7% and 8% at December 31, 1995 and 1996). Net
cash flow, as defined, is payable quarterly and is
applied first to deferred interest with balance, if any,
applied to principal. Note matured August 1, 1997, but
was extended until December 31, 1997 for a fee of
$33,333. Monthly interest payments at 10% are due
beginning September 1, 1997, through maturity........... 7,627 6,662
Note payable to a financial institution, for which
payment is guaranteed by certain partners, bearing
interest at 9.75%. Interest only is payable through
November 1, 1996, with principal and interest payable in
monthly installments commencing November 1, 1996.
Additional interest of 30% of net cash flow, as defined,
is payable quarterly. Note matures October 31, 2000..... 8,500 8,470
Mortgage note, bearing interest at 10%, with monthly
payments of interest only. Note matured August 1, 1997.
The note was extended until December 31, 1997 for a fee
of $33,333.............................................. 10,521 10,521
Mortgage note, bearing interest at 10.71%, with current
pay rate of 6.5% increasing to 8.5% on January 1, 1997,
with annual increases of .5% per year to maturity. The
difference between the amount of interest accrued and
that paid is payable quarterly from available gross
income, as defined. The amounts accrued at December 31,
1995 and 1996, respectively, were $3,132,000 and
$1,866,000. In addition, additional interest, based on
net cash flows, as defined, is payable through December
31, 1997. No additional interest was paid in 1994, 1995,
or 1996. At maturity, April 1, 2001, or upon sale, an
additional amount equal to 40% of the residual value, as
defined, is due......................................... 47,000 47,000
Noninterest bearing mortgage shortfall payable, maturing
April 1, 2001........................................... 2,917 2,917
Mortgage note, bearing interest at 9.82%, principal and
interest payable in monthly installments through
October, 1999, maturing October 13, 1999................ 10,781 10,591
Mortgage note, bearing interest at annually increasing
rates ranging from 5.78% to 13.07%. Specified interest
payments are due monthly, with the difference between
the amount of interest paid and accrued at the contract
rate added to the principal of the note. Additional
interest is due quarterly equal to 30% of adjusted gross
revenue, as defined. The note matures on October 13,
2004. At maturity, the lender is due Shared Appreciation
Interest, as defined. The note is callable after
February 1, 2000. The loan has an interest reserve
account of $1,028,000 and $1,000,000, as of December 31,
1995 and 1996, respectively. The related partnership may
make withdrawals from this reserve to cover any interest
shortfalls, as defined. The loan agreement provides for
a release of the interest reserve account to the related
partnership after October 1, 1997, if certain conditions
are met................................................. 9,219 9,378
</TABLE>
F-10
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1995 1996
-------- --------
<S> <C> <C>
Mortgage note, bearing interest at 11%, principal and
interest payable monthly through July 1997, and
maturing August 1997. The note was extended until
December 31, 1997, for fee of $120,922. Interest is
payable on the first of each month, beginning September
1, 1997, through maturity at a rate equal to the sum of
LIBOR plus 300 basis points............................ $ 24,928 $ 24,446
Note payable, due on April 21, 2003, or on demand by
lender................................................. 10 10
Mortgage note, bearing interest at 9.25% with interest
only. Payments through January 1, 1998, and principal
and interest payable monthly beginning February 1,
1998, based upon a twenty year amortization. In
addition, net cash flow, as defined, is payable
quarterly. On December 31, 2000, all remaining
principal and interest are due, net cash flow, as
defined, payable quarterly............................. 6,876 12,610
Mortgage note, bearing interest at an initial rate of
9.125%, adjusted for the Citibank Base Rate plus .625%.
All principal and interest payable on January 12, 1997,
extended to April 12, 1997. The loan was subsequently
refinanced with a $13,750,000 note bearing interest at
8.25%, with monthly payments of principal and interest
totaling $118,150 through September 2001, with the
remaining balance due October 1, 2001.................. 6,105 13,430
Certificates of Participation, bearing interest at a
variable rate, adjusted weekly to be the rate necessary
to remarket the certificates at par (4.8% and 4% at
December 31, 1995 and 1996). Interest payments are due
monthly, and principal payments are due annually until
maturity in 2014. Upon the occurrence of certain
events, the variable interest rate will convert to a
fixed rate. The certificates were issued at a discount
of $2,046,000 which is being amortized to interest
expense over the life of the certificates using the
effective interest method. In addition to the hotel
property, the certificates are secured by letters of
credit totaling the outstanding principal balance of
the certificates. The letters of credit are secured by
other property and ownership interests owned by the
partners of the hotel partnership. The letters of
credit bear an annual fee of 2% of the outstanding
principal balance of the certificates. Until expiration
in December 1995, pursuant to the terms of an interest
rate swap agreement, interest payments were fixed at
5.69% for the hotel partnership, and the counterparty
paid interest at one half of its daily prime rate. The
original cost of the agreement was capitalized as an
other asset and amortized over the life of the swap
agreement using the straight line method. Additional
interest expense incurred as a result of the swap
agreement totaled $1,130 and $449 in 1994 and 1995..... 59,300 58,200
Discount on certificates................................ (1,779) (1,746)
-------- --------
203,313 213,797
Current portion of long-term debt....................... (1,647) (67,811)
-------- --------
Long-term debt, excluding current portion............... $201,666 $145,986
======== ========
</TABLE>
The annual principal requirements of the long-term debt for the five years
subsequent to December 31, 1996 (excluding a discount of $1,746,000) are as
follows (in thousands):
<TABLE>
<S> <C>
Year ending December 31:
1997......................................................... $ 67,811
1998......................................................... 1,773
1999......................................................... 11,772
2000......................................................... 22,190
2001......................................................... 52,117
Thereafter................................................... 59,880
--------
Total long-term debt at December 31, 1996.................. $215,543
========
</TABLE>
F-11
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
As discussed above, certain of the mortgage notes payable contain provisions
which require additional payments to the lenders based on residual values or
shared appreciation of the properties at the maturity of the loan or sale of
the property. If the properties are acquired, management estimates that
additional payments related to these provisions ranging from $11,500,000 to
$14,000,000 will be paid to the lenders from the proceeds of the sale. These
amounts are considered as additional costs to sell the properties and they
will be reflected in the financial statements at the time the transaction is
completed.
The terms of substantially all of the mortgage notes require the respective
partnerships to make deposits, on a monthly basis, to tax escrow accounts for
the payment of real estate and personal property taxes and assessments. The
terms of the mortgage notes also require hotel partnerships to maintain
furniture, fixture and equipment reserve accounts ("FF&E Reserve") equal to an
amount ranging from 3% to 4% of gross revenues, as defined, to be used for
capital expenditures. The balances of the tax escrow accounts and the FF&E
Reserve are included in "Cash, restricted" and "Cash, restricted for
noncurrent assets", respectively, in the accompanying combined financial
statements.
The Partnerships will use the proceeds from the sale of the properties to
repay existing debt. Approximately $67,800,000 of the combined partnerships'
debt matures in 1997. In the event the assets are not sold before the debt
matures, management intends to extend or refinance these existing mortgage
notes.
7. CONTRIBUTION OF NOTE PAYABLE:
In May 1994, a revolving credit facility utilized by one of the hotel
partnerships was converted to a related party note payable and was then
contributed by the partners to the hotel partnership. This contribution is
reflected on the accompanying combined statement of partners' deficit for the
year ended December 31, 1994. Prior to the conversion, the revolving credit
facility bore interest at LIBOR plus .65% and was secured by property owned by
affiliates of the partners of the hotel partnership.
8. EMPLOYEE BENEFIT PLANS:
All employees at the Partnerships are employees of WHC. The Partnerships
reimburse WHC for all expenses and charges related to the employees'
participation in any of the WHC benefit programs. Included in these plans are
the Wyndham Employees Savings and Retirement Plan, a 401(k) retirement savings
plan (the "Plan") and a self-insured group health plan.
Employees who are over 21 years of age and have completed one year of
service are eligible to participate in the Plan. The Plan matches employee
contributions up to 4% of the employee's salary. For the years ended December
31, 1994, 1995 and 1996, the Partnerships reimbursed WHC $205,000, $194,000
and $281,000, respectively for the Plan.
The Partnerships also reimburse WHC for costs related to the employees'
participation in a self-insured group health plan. For the years ended
December 31, 1994, 1995 and 1996, the Partnership reimbursed WHC $791,000,
$902,000 and $1,005,000, respectively.
One hotel makes contributions, based on monthly rates per employee, as
specified in union agreements, to union-administered, multi-employer, defined
benefit retirement plans. Because the plans cover numerous employees from many
organizations, no plan benefit information is presented. Expenses relating to
these plans totaled $82,000, $80,000 and $105,000 in 1994, 1995 and 1996
respectively.
9. COMMITMENTS AND CONTINGENCIES:
Certain hotel partnerships lease equipment and land under capital and
operating leases having noncancellable agreements extending beyond one year.
Capital leases have imputed interest rates ranging from
F-12
<PAGE>
CROW FAMILY HOTEL PARTNERSHIPS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8% to 14.29%. Future minimum lease payments required under the capital leases
(together with the present value of net minimum lease payments) and operating
leases at December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASE
------- ---------
<S> <C> <C>
Year ending December 31:
1997................................................. $224 $ 1,639
1998................................................. 172 1,616
1999................................................. 68 1,508
2000................................................. 45 1,499
2001................................................. -- 1,482
Thereafter........................................... -- 49,367
---- -------
Total minimum lease payments........................... 509 $57,111
=======
Less imputed interest.................................. 71
----
Present value of net minimum lease payment............. 438
Less current portion................................... 185
----
Long-term portion of net minimum lease payments........ $253
====
</TABLE>
A partnership leases the land on which the hotel is built through two lease
agreements. Rent of $1 is payable annually to one of the partners under one of
these leases. The partner financed this purchase of land with an interest-free
advance from the partnership of $3,625,000. The remainder of the land is
leased from a state authority for $653,000 annually, payable in quarterly
installments of $163,000. These leases are dated July 31, 1978, with an
initial term of 65 years, and two renewal options of 15 years each, subject to
the term of the lessor's legal existence.
Another hotel partnership leases the land on which the hotel is built under
a sub-lease effective January 1, 1985, with an initial term of 75 years and
one renewal option of 25 years. Lease payments include two components: (1)
"basic rent" which escalate every 5 years based on the consumer price index,
and (2) "additional rent," as defined in the master lease, to the extent that
it exceeds basic rent. Basic rent payments are due annually on December 20 on
a prepaid basis, and the current basic rent payment is $672,000 per year. To
date, no additional rent has been paid as the basic rent exceeds all amounts
calculated as additional rent.
The Partnerships incurred rent expense totaling $1,964,000, 1,982,000 and
$1,993,000 in 1994, 1995 and 1996, respectively, which includes operating
leases and the three land leases.
The Partnerships may be subject to certain litigation and claims in the
ordinary course of business which are generally covered by insurance policies.
In management's opinion, litigation and claims will not have a material
adverse effect upon the financial position or results of operations of the
Partnerships.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Partnerships have estimated the fair value of its financial instruments
at December 31, 1996 as required by Statement of Financial Accounting
Standards No. 107. The carrying values of cash and cash equivalents, accounts
receivable and accrued expenses are reasonable estimates of their fair values
due to their short-term maturities. Long-term debt had a fair value of
approximately $202,053,000 and $212,597,000 at December 31, 1995 and 1996,
respectively. Fair value was estimated using an interest rate of prime plus
one percent at December 31, 1995 and 1996.
F-13
<PAGE>
WHG RESORTS & CASINOS INC.
TABLE OF CONTENTS
<TABLE>
<S> <C>
WHG RESORTS & CASINOS INC.
Report of Independent Auditors.......................................... F-15
Consolidated Balance Sheets at June 30, 1997 and June 30, 1996.......... F-16
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995.......................................................... F-17
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995.......................................................... F-18
Consolidated Statements of Stockholders' Equity for the years ended June
30, 1997, 1996 and 1995................................................ F-19
Notes to Consolidated Financial Statements.............................. F-20
Financial Statement Schedule II--Valuation and Qualifying Accounts for
the years ended June 30, 1997, 1996 and 1995........................... F-33
POSADAS DE SAN JUAN ASSOCIATES, a significant nonconsolidated affiliate of
WHG
Report of Independent Auditors.......................................... F-34
Balance Sheets at June 30, 1997 and 1996................................ F-35
Statements of Operations and Deficit for the years ended June 30, 1997,
1996 and 1995.......................................................... F-36
Statements of Cash Flows for the years ended June 30, 1997, 1996 and
1995................................................................... F-37
Notes to Financial Statements........................................... F-38
Financial Statement Schedule II--Valuation and Qualifying Accounts for
the years ended June 30, 1997, 1996 and 1995........................... F-43
WKA EL CON ASSOCIATES, a significant nonconsolidated affiliate of WHG
Report of Independent Auditors.......................................... F-44
Balance Sheets at June 30, 1997 and 1996................................ F-45
Statements of Operations and Deficit for the years ended June 30, 1997,
1996 and 1995.......................................................... F-46
Statements of Cash Flows for the years ended June 30, 1997, 1996 and
1995................................................................... F-47
Notes to Financial Statements........................................... F-48
EL CONQUISTADOR PARTNERSHIP L.P., a significant nonconsolidated affiliate
of WHG
Report of Independent Auditors.......................................... F-51
Balance Sheets at March 31, 1997 and 1996............................... F-52
Statements of Operations and (Deficiency in) Partners' Capital for the
years ended March 31, 1997, 1996 and 1995.............................. F-53
Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995................................................................... F-54
Notes to Financial Statements........................................... F-55
</TABLE>
F-14
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
WHG Resorts & Casinos Inc.
We have audited the accompanying consolidated balance sheets of WHG Resorts
& Casinos Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended June 30, 1997. Our audits also included the
financial statement schedule of valuation and qualifying accounts for each of
the three years in the period ended June 30, 1997. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of WHG
Resorts & Casinos Inc. as of June 30, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1997 in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997, except for Note
18, as to which the date is
September 17, 1997.
F-15
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1997 1996
----------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents............................ $ 17,886 $ 6,616
Receivables, net of allowances of $649 in 1997 and
$475 in 1996........................................ 3,477 2,534
Receivables from nonconsolidated affiliates.......... 1,105 608
Inventories.......................................... 590 651
Other current assets................................. 791 689
----------- -----------
Total current assets............................... 23,847 11,098
Investments in, receivables and advances to
nonconsolidated affiliates............................ 30,603 27,126
Property and equipment, net............................ 43,861 44,919
Land held as investment................................ 5,095 5,095
Excess of purchase cost over amount assigned to net
assets acquired, net of accumulated amortization of
$3,739 in 1997 and $3,340 in 1996..................... 8,710 9,109
Other assets........................................... 5,355 7,387
----------- -----------
$ 117,473 $ 104,734
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable..................................... $ 3,760 $ 3,297
Accrued compensation and related benefits............ 2,855 2,128
Other accrued liabilities............................ 3,723 2,721
Dividend payable on preferred stock of Condado
Plaza............................................... -- 94
Notes payable........................................ 1,000 2,000
Current maturities of long-term debt................. 3,681 3,299
----------- -----------
Total current liabilities.......................... 15,019 13,539
Long-term debt, less current maturities................ 19,868 23,555
Deferred income taxes.................................. 2,638 2,291
Other noncurrent liabilities........................... 4,532 4,542
Payable to WMS Industries Inc.......................... 102 397
Minority interests..................................... 19,990 18,810
Preferred stock of Condado Plaza held by WMS Industries
Inc................................................... -- 4,100
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized......... -- --
Common stock, class A, $.01 par value, non-voting,
3,000,000 shares authorized......................... -- --
Common stock, no par value, 12,000,000 shares, $.01
par value, authorized, 6,050,200 shares outstanding
in 1997 and 1,000 shares authorized and 100 shares
outstanding in 1996................................. 61 1
Additional paid-in capital............................. 14,296 3,849
Retained earnings...................................... 40,967 33,650
----------- -----------
Total stockholders' equity......................... 55,324 37,500
----------- -----------
$ 117,473 $ 104,734
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-16
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------
1997 1996 1995
--------- --------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Revenues:
WHGI management fees from nonconsolidated
affiliates................................. $ 13,937 $ 13,372 $ 13,348
Condado Plaza hotel/casino:
Casino...................................... 23,720 22,438 24,584
Casino promotional allowances............... (7,721) (6,986) (6,872)
Rooms....................................... 25,629 25,477 25,210
Food and beverages.......................... 11,034 11,478 11,412
Other....................................... 3,035 2,915 3,196
--------- --------- ---------
55,697 55,322 57,530
--------- --------- ---------
Total revenues............................ 69,634 68,694 70,878
Costs and expenses:
WHGI operating expenses (excl.
depreciation).............................. 3,910 3,882 5,175
Condado Plaza operating expenses (excl.
depreciation):
Casino..................................... 11,334 12,375 13,737
Rooms...................................... 7,639 8,593 9,081
Food and beverages......................... 9,076 10,088 10,503
Other...................................... 4,968 5,281 6,463
--------- --------- ---------
33,017 36,337 39,784
Selling and administrative................... 9,913 9,487 12,301
Depreciation and amortization................ 5,707 5,430 5,994
--------- --------- ---------
Total costs and expenses.................. 52,547 55,136 63,254
--------- --------- ---------
Operating income............................. 17,087 13,558 7,624
Interest income, primarily from
nonconsolidated affiliates, and
other income................................ 2,334 1,830 2,548
Interest expense............................. (3,265) (3,689) (4,300)
Equity in loss of nonconsolidated
affiliates.................................. (1,196) (3,465) (7,003)
--------- --------- ---------
Income (loss) before tax credit (provision)
and minority interests...................... 14,960 8,234 (1,131)
Credit (provision) for income taxes.......... (3,397) (1,645) 234
Minority interests in income................. (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado
Plaza....................................... (246) (516) (557)
--------- --------- ---------
Net income (loss)............................ $ 7,317 $ 2,437 $ (4,364)
========= ========= =========
Primary earnings (loss) per share............ $ 1.20 $ .40 $ (.72)
========= ========= =========
Shares used in primary earnings per share
calculation................................. 6,086,443 6,050,200 6,050,200
========= ========= =========
Fully diluted earnings (loss) per share...... $ 1.17 $ .40 $ (.72)
========= ========= =========
Shares used in fully diluted earnings per
share calculation........................... 6,247,241 6,050,200 6,050,200
========= ========= =========
Pro forma information reflecting income taxes
on a separate return basis (unaudited):
Income (loss) before tax provision and
minority interests......................... $ 14,960 $ 8,234 $ (1,131)
Provision for income taxes.................. (3,478) (2,545) (1,902)
Minority interests in income................ (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado
Plaza...................................... (246) (516) (557)
--------- --------- ---------
Net income (loss)......................... $ 7,236 $ 1,537 $ (6,500)
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-17
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1997 1996 1995
------- -------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Operating activities:
Net income (loss)................................. $ 7,317 $ 2,437 $(4,364)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 5,707 5,430 5,994
Provision for loss on receivables............... 366 1,457 1,842
Undistributed loss of nonconsolidated
affiliates..................................... 1,196 3,465 7,003
Deferred income taxes........................... 347 3,239 (1,626)
Minority interests.............................. 4,000 3,636 2,910
Increase (decrease) resulting from changes in
operating assets and liabilities:
Receivables.................................... (1,309) 342 (541)
Other current assets........................... 54 459 471
Accounts payable and accruals.................. 2,192 (12) (1,152)
Net amounts due from nonconsolidated
affiliates.................................... (5,170) (1,931) (5,906)
Other assets and liabilities not reflected
elsewhere..................................... (10) (618) 218
------- -------- -------
Net cash provided by operating activities......... 14,690 17,904 4,849
Investing activities:
Purchase of property and equipment................ (3,153) (1,149) (2,066)
Purchase of additional shares of subsidiaries..... (1,500) -- (3,925)
Investments in and advances to nonconsolidated
affiliates....................................... -- -- (1,360)
Collections from nonconsolidated affiliates....... -- 985 2,010
Other investing................................... 1,760 -- --
------- -------- -------
Net cash used in investing activities............. (2,893) (164) (5,341)
Financing activities:
Payment of long-term debt and notes payable....... (8,703) (3,887) (4,568)
Proceeds from short-term note..................... 4,500 -- --
Capital contribution from WMS Industries Inc...... 1,643 -- --
Net intercompany transactions with WMS Industries
Inc.............................................. 4,273 (6,275) 3,125
Purchase of preferred stock of Condado Plaza by
WMS Industries Inc............................... -- -- 2,500
Redemption of preferred stock of Condado Plaza
from WMS Industries Inc.......................... -- (3,400) --
Dividends paid to minority shareholders of
subsidiary....................................... (2,240) (1,189) (783)
------- -------- -------
Net cash (used) provided by financing activities.. (527) (14,751) 274
------- -------- -------
Increase (decrease) in cash and cash equivalents... 11,270 2,989 (218)
Cash and cash equivalents at beginning of year..... 6,616 3,627 3,845
------- -------- -------
Cash and cash equivalents at end of year........... $17,886 $ 6,616 $ 3,627
======= ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-18
<PAGE>
WHG RESORTS & CASINOS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
Balance as of June 30, 1994........... $ 1 $ 3,849 $35,577 $39,427
Net loss............................ -- -- (4,364) (4,364)
---- ------- ------- -------
Balance as of June 30, 1995........... 1 3,849 31,213 35,063
Net income.......................... -- -- 2,437 2,437
---- ------- ------- -------
Balance as of June 30, 1996........... 1 3,849 33,650 37,500
Net income.......................... -- -- 7,317 7,317
Capital contributions by WMS
Industries Inc..................... -- 10,507 -- 10,507
6,050.2 for 1 stock split........... 60 (60) -- --
---- ------- ------- -------
$ 61 $14,296 $40,967 $55,324
==== ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-19
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND COMPANY OPERATIONS
Basis of Presentation
WHG Resorts & Casinos Inc. ("WHG") was formerly known as WMS Hotel
Corporation. Prior to the April 21, 1997 spin-off, WHG was a wholly owned
subsidiary of Williams Hotel Corporation ("WHC"). WHC was a wholly-owned
subsidiary of WMS Industries Inc. ("WMS"). WMS merged WHC, just prior to the
April 21, 1997 spin-off, into WHG at which time the predecessor financial
statements of WHC appearing herein became the financial statements of WHG.
The consolidated financial statements of WHG reflect results of operations,
cash flows, financial position and changes in stockholders' equity and have
been prepared using the historical basis in the assets and liabilities and
historical results of operations of WHG and subsidiaries and affiliates.
The pro forma information reflecting income taxes on a separate return basis
(unaudited), included with the consolidated statements of operations, reflects
the provision for income taxes without the tax benefits allocated to WHG from
WMS for utilization of partnership losses in the WMS consolidated Federal
income tax return, see Note 6--Income Taxes. WHG during the periods presented
did not have income subject to Federal income tax that could have been
included in its consolidated Federal income tax return or in the separate tax
returns of certain of its subsidiaries along with the partnership losses to be
able to realize the tax benefits.
Company Operations
WHG through its subsidiaries and affiliates owns, operates and manages two
of the leading hotels and casinos located in San Juan, Puerto Rico, and
through a second affiliate, the El Conquistador Resort & Country Club, a
destination resort complex in Las Croabas, Puerto Rico. WHG's holdings
include: a 100% interest in Posadas de Puerto Rico Associates, Incorporated,
the owner of the Condado Plaza Hotel & Casino ("Condado Plaza"); a 50%
interest in Posadas de San Juan Associates, a partnership which owns the El
San Juan Hotel & Casino ("El San Juan"); a 23.3% indirect interest in El
Conquistador Partnership L.P. which owns the El Conquistador Resort & Country
Club; and a 62% interest in Williams Hospitality Group Inc. ("WHGI"), the
management company for the above properties.
WHG was a wholly owned subsidiary of WMS prior to April 21, 1997. On April
21, 1997 WMS distributed 100% of the outstanding voting common stock of WHG to
WMS's stockholders, thereby creating a new independent public corporation.
NOTE 2: PRINCIPAL ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of WHG and its
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in companies that
are 20% to 50% owned are accounted for by the equity method. WHG records its
equity in the results of operations of El Conquistador Partnership L.P., based
on that partnership's fiscal year end of March 31.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenue and expenses during the period reported. Actual results
could differ from those estimates.
F-20
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash and Cash Equivalents
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (determined by the first-in, first-out method) or
market.
Property and Equiptment
Property and equipment are stated at cost and depreciated by the straight-
line method over their estimated useful lives.
Excess of Purchase Cost Over Amount Assigned to Net Assets Acquired
(Goodwill)
Goodwill arising from acquisitions is being amortized by the straight-line
method over 20 to 40 years.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
food, beverages and hotel services furnished to patrons, commissions and
transportation costs.
Advertising Expense
The cost of advertising is charged to earnings as incurred and for fiscal
1997, 1996 and 1995 was $809,000, $988,000 and $1,103,000, respectively.
NOTE 3: ACQUISITIONS
In July 1994, the Company acquired 5% of Williams Hospitality increasing its
interest from 57% to 62%. In July 1994, the Company acquired 2.5% of Posadas
de Puerto Rico Associates, Incorporated increasing its interest from 92.5% to
95%. In April 1997, the Company acquired the remaining 5% of Posadas de Puerto
Rico Associates, Incorporated increasing its interest from 95% to 100%.
NOTE 4: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in
Posadas de San Juan Associates, a partnership ("PSJA") and a 23.3% indirect
interest in El Conquistador Partnership L.P. ("El Conquistador") through a
46.5% interest in WKA El Con Associates, a partnership ("WKA El Con").
F-21
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Current receivables from nonconsolidated affiliates at June 30 were:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
PSJA................................................... $ 252 $ 61
WKA El Con............................................. 85 64
El Conquistador........................................ 768 483
-------- --------
$ 1,105 $ 608
======== ========
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Investments:
PSJA................................................. $ (6,690) $ (7,678)
WKA El Con........................................... (2,813) (612)
Receivables and advances:
PSJA................................................. 25,541 23,148
WKA El Con........................................... 5,062 4,556
El Conquistador...................................... 9,503 7,712
-------- --------
$ 30,603 $ 27,126
======== ========
</TABLE>
PSJA operates as a partnership, therefore, 50% of its accumulated deficit is
recorded as an investment. Summarized financial data for PSJA's financial
position at June 30, 1997 and 1996 and PSJA's results of operations for fiscal
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets................... $ 8,133 $ 6,558 --
Noncurrent assets................ 35,804 35,198 --
Total assets..................... 43,937 41,756 --
Payable to affiliates............ 237 61 --
Other current liabilities........ 10,659 10,101 --
Total current liabilities........ 10,896 10,162 --
Noncurrent payable to
affiliates...................... 25,591 23,148 --
Other noncurrent liabilities..... 20,831 23,803 --
Total noncurrent liabilities..... 46,422 46,951 --
Partners' capital deficiency..... (13,381) (15,357) --
Total liabilities and partners'
capital deficiency.............. 43,937 41,756 --
Revenues......................... 51,732 50,124 $ 51,797
Management fees and interest
payable to WHGI................. 5,325 4,738 4,691
Other costs and expenses......... 44,431 46,746 49,507
Net income (loss)................ $ 1,976 $ (1,360) $ (2,401)
</TABLE>
F-22
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a 46.5% interest in WKA El Con which has a 50% interest in
El Conquistador. Summarized financial data for WKA El Con's financial position
at June 30, 1997 and 1996 and WKA El Con's results of operations for fiscal
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1995
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans receivable from El
Conquistador.................... $ 18,343 $ 16,116 --
Investment in El Conquistador,
net............................. (12,464) (7,763) --
Other assets, net................ 2,384 3,566 --
Total assets..................... 8,263 11,919 --
Current payable to WHGI.......... 85 64 --
Long-term note payable including
interest........................ 5,527 5,197 --
Long-term notes payable to
partners including interest..... 10,475 9,791 --
Partners' (capital deficiency)... (7,824) (3,133) --
Total liabilities and partners'
capital deficiency.............. 8,263 11,919 --
Net operating income (loss)...... 10 (178) $ (356)
Equity in net loss of El
Conquistador for fiscal year
ended March 31.................. (4,701) (6,120) (13,739)
Equity in income of Las Casitas.. -- 313 1,627
Net (loss)....................... $ (4,691) $ (5,985) $(12,468)
</TABLE>
The WKA El Con's long-term note payable is collateralized by a pledge of a
second mortgage on land owned by the Company that cost $3,761,000 and a WMS
guarantee of $1,000,000 as to which WHG will indemnify WMS in the event of any
payments made on the guarantee. The other partners of WKA El Con have pledged
cash and a portion of their interest in WHGI stock, in proportion to their
interests in WKA El Con, to WHG to be used in the event the guarantee is drawn
on.
El Conquistador is a destination resort and casino which began operations in
November 1993. Summarized financial data for El Conquistador's financial
position at March 31, 1997 and 1996 (the partnership's fiscal year end) and El
Conquistador's results of operations for fiscal years ended March 31, 1997,
1996 and 1995 were:
<TABLE>
<CAPTION>
MARCH 31, 1997 MARCH 31, 1996 MARCH 31, 1995
-------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current assets................ $ 13,618 $ 11,823 --
Land, building and equipment,
net.......................... 185,552 190,463 --
Deferred debt issuance and
pre-opening costs, net....... 5,841 8,587 --
Other assets.................. 419 818 --
Total assets.................. 205,430 211,691 --
Current liabilities........... 22,829 23,281 --
Debt due February 1, 1998..... 120,000 -- --
Long-term debt................ 26,660 149,324 --
Long-term due to partners and
affiliates................... 48,869 42,611 --
Partners' (capital
deficiency).................. (12,928) (3,525) --
Total liabilities and capital
deficiency................... 205,430 211,691 --
Revenues...................... 92,958 89,214 $ 84,743
Management fees and interest
payable to WHGI.............. 6,282 5,820 3,874
Interest payable to partners.. 2,498 2,598 1,898
Other costs and expenses...... 84,434 82,538 95,324
Depreciation and
amortization................. 9,147 10,499 11,124
Net (loss).................... $ (9,403) $(12,241) $(27,477)
</TABLE>
F-23
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At March 31, 1997 WHGI has provided guarantees amounting to $2,170,000 in
connection with leasing and other financing transactions of El Conquistador.
Debt of the El Conquistador of $120,000,000 is collateralized by a letter of
credit which terminates on March 9, 1998. Under the terms of the loan
agreement, such debt is required to be repaid on February 1, 1998 in the event
the letter of credit is not renewed or replaced prior to November 9, 1997. El
Conquistador has engaged investment advisors to investigate obtaining an
alternative letter of credit or financing arrangement. If such an alternative
is not found, the Company's investment in, receivables from, advances to and
potential payments on guarantees for El Conquistador totaling $18,463,000 at
June 30, 1997 may not be recoverable. In the event this amount is not
recovered the 38% minority interest in WHGI would absorb approximately
$5,900,000 of the charge. WHGI would also incur a loss of future management
fees from El Conquistador. For the years ended June 30, 1997, 1996 and 1995,
the Company accrued approximately $5,650,000, $5,395,000 and $3,704,000,
respectively, in management fee revenue from El Conquistador. The Company also
recorded equity in losses of El Conquistador of $2,188,000, $2,786,000 and
$5,803,000 in the years ending June 30, 1997, 1996 and 1995, respectively.
Consolidated retained earnings of the Company at June 30, 1997 is reduced by
$23,262,000 for the Company's ownership percentage in the accumulated deficit
of PSJA and WKA El Con which are accounted for under the equity method.
Interest earned by the Company from all the nonconsolidated affiliates for
the years ended June 30, 1997, 1996 and 1995 was $1,823,000, $1,650,000 and
$1,373,000, respectively.
NOTE 5: PROPERTY AND EQUIPMENT
At June 30 net property and equipment were:
<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land................................................... $ 7,535 $ 7,535
Buildings and improvements............................. 47,865 45,294
Furniture, fixtures and equipment...................... 31,975 30,473
-------- --------
87,375 83,302
Less accumulated depreciation.......................... (43,514) (38,383)
-------- --------
Net property and equipment............................. $ 43,861 $ 44,919
======== ========
</TABLE>
NOTE 6: INCOME TAXES
The Company's two operating subsidiaries and two nonconsolidated affiliates
operate under the provisions of the Puerto Rico Tourism Incentives Act of 1993
which provides a ten-year incentive grant which may be extended for ten years.
Major benefits include a 90% exemption from income taxes on income deemed to
be derived from tourism operations. The grant also provides a 90% exemption
from municipal real and personal property taxes. Income deemed to be derived
from casino operations are not covered by the grant.
The two operating subsidiaries, the Condado Plaza and WHGI elect to file
income tax returns under Section 936 of the United States Internal Revenue
Code which provides for total or, after 1994, partial exemption from Federal
income taxes on income from sources within Puerto Rico if certain conditions
are met. The portion of taxes that can be exempt under Section 936 is
determined by the calculation of certain limits prescribed by Section 936.
These limits are either based on certain costs and expenses ("economic
activity method") or a fixed
F-24
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
percentage as prescribed in Section 936 ("percentage limitation method").
Corporations that operate under Section 936 cannot be members of a
consolidated Federal income tax return. The tax exemption under Section 936
generally decreases each year until the benefits terminate in 2005.
The Condado Plaza elected the economic activity method which results in a
100% exemption from Federal income taxes. WHGI elected the percentage
limitation method which resulted in a Federal tax provision of $2,793,000 in
fiscal 1997, $1,741,000 in fiscal 1996 and $1,149,000 in fiscal 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the consolidated Federal income tax
return of WMS and allocated to the Company through April 22, 1997.
Significant components of the Company's deferred tax assets and liabilities
at June 30 were:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities resulting from:
Tax over book deductions of WKA El Con.................. $ 1,033 $ 686
Tax over book deductions of PSJA........................ 1,605 1,605
------- -------
Deferred tax liability.................................. $(2,638) $(2,291)
======= =======
</TABLE>
The Company's provision for income taxes was calculated on a historical
basis. WHG and certain of its subsidiaries were members of the WMS
consolidated Federal income tax return since their inception until April 21,
1997, the effective date of the spin off. Accordingly, losses for Federal
income tax purposes which were primarily generated by the Company's equity in
loss of nonconsolidated affiliates in the form of partnership losses were
utilized by WMS in its consolidated tax return and resulted in tax benefits.
The Company received the tax benefits of $428,000, $4,139,000 and $510,000 for
usage of such losses during the years ended June 30, 1997, 1996 and 1995,
respectively.
Significant components of the (provision) credit for income taxes for the
years ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal:
Certain Puerto Rico corporate income subject
to federal tax............................... $(2,793) $(1,741) $(1,149)
U.S. subsidiaries--primarily partnership
losses of nonconsolidated affiliates......... 428 4,139 510
------- ------- -------
Total federal............................... (2,365) 2,398 (639)
Puerto Rico.................................... (685) (804) (753)
------- ------- -------
Total current (provision) credit............ 3,050 1,594 (1,392)
Deferred--federal, primarily from book to tax
differences on partnership losses.............. (347) (3,239) 1,626
------- ------- -------
(Provision) credit for income taxes............. $(3,397) $(1,645) $ 234
======= ======= =======
</TABLE>
F-25
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, income (loss) before income tax credit
(provision) and minority interests is comprised of the following components
for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) before income tax credit
(provision) and minority interests:
Puerto Rico corporate income.................. $16,908 $11,487 $ 5,652
U.S. subsidiaries--primarily partnership
losses of nonconsolidated affiliates......... (1,948) (3,253) (6,783)
------- ------- -------
$14,960 $ 8,234 $(1,131)
======= ======= =======
</TABLE>
The provision (credit) for income taxes differs from the amount computed
using the statutory federal income tax rate as follows for the years ended
June 30:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory federal income tax at 35%............. $ 5,236 $ 2,882 $ (395)
Puerto Rico corporate loss resulting in no tax
benefit........................................ -- 199 1,525
Puerto Rico corporate income taxed at lower
rates.......................................... (2,180) (1,671) (1,602)
Other, net...................................... 341 235 238
------- ------- -------
$ 3,397 $ 1,645 $ (234)
======= ======= =======
</TABLE>
Undistributed earnings of the Puerto Rico subsidiaries that operate as
Section 936 corporations under Federal income tax regulations were
approximately $41,800,000 at June 30, 1997. Those earnings are considered
indefinitely reinvested and, accordingly, no provision for income or toll gate
taxes has been provided thereon. Upon distribution of those earnings in the
form of dividends, the Company would be subject to U.S. income tax of
approximately $2,300,000 and toll gate withholding taxes of approximately
$750,000.
WHG and WMS have entered into a tax sharing agreement that provides for the
rights and obligations of each company regarding deficiencies and refunds, if
any, relating to Federal and Puerto Rico income taxes for tax years up to and
including fiscal 1997.
During fiscal 1997, 1996 and 1995 income taxes paid to taxing authorities
were $2,728,000, $2,289,000 and $1,549,000, respectively.
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.5% and 9.25%
at June 30, 1997 and 1996, respectively. Borrowings under the line were
$1,000,000 on June 30, 1997 and $2,000,000 on June 30, 1996. The line of
credit is collateralized by a mortgage on the Condado Plaza property and
accounts receivable.
F-26
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Long-term debt at June 30 was:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Condado Plaza mortgage note, due in increasing semi-
annual amounts through 1999, 12%..................... $21,900 $24,150
Other................................................. 1,649 2,704
------- -------
23,549 26,854
Less current maturities............................... (3,681) (3,299)
------- -------
$19,868 $23,555
======= =======
</TABLE>
Scheduled payments by fiscal year on long-term debt are as follows:
$3,681,000 in 1998 and $19,868,000 in 1999.
The amount of interest paid during fiscal 1997, 1996 and 1995 was
$3,255,000, $3,679,000 and $4,306,000, respectively.
NOTE 8: AUTHORIZED SHARES
At June 30, 1997 the authorized common stock of WHG consists of 12,000,000
shares of $.01 par value of which 6,050,200 shares were issued and
outstanding. The Company's capital structure at June 30, 1997 also consists of
3,000,000 shares of Class A non-voting common stock of which none are
outstanding. The Company also has 2,000,000 shares of authorized preferred
stock, none were issued at June 30, 1997. The preferred stock will be issuable
in series, and the relative rights and preferences and the number of shares in
each series are established by the Board of Directors. At June 30, 1997,
300,000 shares of the Preferred Stock were designated as Series B Preferred
Stock and reserved for issuance. See Note 16. At June 30, 1996 the capital
structure consisted of 1,000 shares of no par value common stock of which 100
were issued and outstanding.
NOTE 9: STOCK OPTION PLAN
The Company's stock option plan allows for the grant of both incentive stock
options and nonqualified options on shares of voting common stock through the
year 2007. The stock option plan allows for the grant of options on 900,000
shares of common stock to officers, directors, employees and under certain
conditions to consultants and advisers to the Company and its subsidiaries.
The stock option committee has the authority to fix the terms and conditions
upon which each option is granted, but in no event shall the term exceed ten
years or be granted at less than 100% of the fair market value of the stock at
the date of grant in the case of incentive stock options and 85% of the fair
market value of the stock on the date of grant in the case of non-qualified
stock options.
The Company accounts for stock options for purposes of determining net
income in accordance with APB Opinion No. 25 "Accounting for Stock Issued to
Employees." SFAS No. 123 regarding stock option plans permits the use of APB
No. 25 but requires the inclusion of certain pro forma disclosures in the
footnotes.
If the Company had adopted the expensing provisions of SFAs No. 125 the
Company's pro forma net income for fiscal 1997 would have been $5,876,000. Pro
forma primary and fully diluted earnings per share for fiscal 1997 would have
been $0.97 and $0.96, respectively. There is no effect on reported amounts for
fiscal 1996, since the options were not granted until fiscal 1997.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants, all of which were in 1997: dividend yield 0%;
expected volatility 32%; risk free interest rates of 6.2%; and expected lives
of four years.
F-27
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
During fiscal 1997, there were 898,000 options granted, all of which were
outstanding on June 30, 1997 and have a weighted average exercise price of
$8.49, a weighted average fair market value of $2.94, a weighted average
contractual life of 9.8 years and exercise prices that range from $8.38 to
$11.00. At June 30, 1997, 472,000 options are exercisable with a weighted
average exercise price of $8.38.
NOTE 10: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to
concentrations of credit and market risk consist primarily of cash equivalents
and accounts receivable. By policy, the Company places its cash equivalents
only in high credit quality securities and limits the amounts invested in any
one security. At June 30, 1997, accounts receivable are from hotel and casino
guests and travel agents located throughout North America and Latin America
and because of the number and geographic distribution, concentration is
limited.
The estimated fair value of financial instruments at June 30, 1997 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents and current notes payable are considered to be a reasonable
estimate of their fair value.
At June 30, 1997, the $21,900,000 Condado Plaza 12% mortgage note payable is
estimated to have a fair value of $22,781,000 using discounted cash flow
analysis based on an estimated interest rate of 8.25%. The mortgage note is
subject to a substantial prepayment penalty based on interest rate
differentials plus a fixed percentage.
NOTE 11: LEASE COMMITMENTS
Operating leases relate principally to hotel facilities and equipment. A
portion of the Condado Plaza hotel facilities are leased from a partnership
owned by a former minority shareholder of the Condado Plaza. The former
minority shareholder lease extends through 2008 at an annual rent of $684,000
through September 30, 1998 with periodic escalations thereafter to an annual
rent of $827,000 in 2004. Rent expense for fiscal 1997, 1996 and 1995 was
$760,000, $1,027,000 and $1,077,000, respectively (including $684,000, paid in
each fiscal 1997, 1996 and 1995, under the former minority shareholder lease
at the Condado Plaza). Total net future lease commitments for minimum rentals
at June 30, 1998, 1999, 2000, 2001, 2002 and thereafter are $718,000,
$769,000, $786,000, $786,000, $786,000 and $1,490,000, respectively.
F-28
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: TRANSACTIONS WITH WMS
The Company's two operating subsidiaries and two nonconsolidated affiliates
have each provided for its off-season cash needs through its own operating
cash and from individual short-term note arrangements. Plant and equipment
additions at each property have also generally been provided by its own cash
from operations or third party financing. Cash advances from WMS, for the
periods reported, have been used for investment purposes. A summary of
advances and repayments between WMS and the Company prior to the April 21,
1997 spin-off for the years ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Advances from (repayments to) WMS by use or
source:
Purchase of additional shares in subsidiaries.... $ -- $ -- $3,738
Investment in and advances to (repayments from)
WKA El Con...................................... -- (546) 157
Cash primarily generated from Williams
Hospitality dividends........................... -- (1,590) (260)
Cash received from WMS for cumulative tax
benefits........................................ 4,357 -- --
Other, net....................................... 409 -- --
Income tax benefits from partnership losses
utilized by WMS-- see Note 6.................... (493) (4,139) (510)
------ ------- ------
$4,273 $(6,275) $3,125
====== ======= ======
</TABLE>
During fiscal 1995 the Condado Plaza sold to WMS 50 shares of 8% non-voting
preferred stock with a liquidation preference of $50,000 per share for
$2,500,000 bringing the total of such preferred stock held by WMS to 150
shares and $7,500,000 at June 30, 1995. During fiscal 1996 the Condado Plaza
redeemed 68 of those preferred shares at $50,000 per share for $3,400,000.
During fiscal 1997 the remaining 82 preferred shares were contributed to the
capital of WHG. In April 1997, the Condado Plaza redeemed 41 of those
preferred shares at $50,000 per share for $2,050,000. Subsequent to June 30,
1997 (July and August 1997), an additional 24 shares were redeemed at $50,000
per share for $1,200,000.
<TABLE>
<S> <C>
During fiscal 1997 WMS contributed the following to the capital of
WHG (in thousands):
Net, intercompany payable to WMS................................. $ 4,764
Cash contribution................................................ 1,643
82 preferred shares of PPRA, liquidation preference of $50,000... 4,100
-------
Total contribution............................................... $10,507
=======
</TABLE>
NOTE 13: PENSION PLAN
Certain subsidiaries are required to make contributions on behalf of
unionized employees to defray part of the costs of the multi-employer pension
plans established by their respective labor unions. Such contributions are
computed using a fixed charge per employee. Contributions to the plans for
fiscal 1997, 1996 and 1995 were $377,000, $340,000 and $352,000, respectively.
F-29
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1997 and 1996 are as
follows, in thousands except per share amounts:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1996 1996 1997 1997
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1997 Quarters:
Revenues................... $ 12,879 $ 17,175 $ 21,592 $ 17,988
========== ========== ========== ==========
Operating income........... $ 790 $ 4,312 $ 8,115 $ 3,870
Interest expense, net...... (301) (282) (263) (85)
Equity in income (loss) of
nonconsolidated
affiliates................ (1,289) (1,739) 633 1,199
Credit (provision) for
income taxes.............. 89 (313) (2,078) (1,095)
Minority interests......... (421) (841) (1,670) (1,068)
Dividend on preferred stock
of subsidiary............. (82) (82) (82) --
---------- ---------- ---------- ----------
Net income (loss).......... $ (1,214) $ 1,055 $ 4,655 $ 2,821
========== ========== ========== ==========
Primary earnings per
share..................... $ (.20) $ (.17) $ .77 $ .46
========== ========== ========== ==========
Shares used in
calculation............... 6,050,200 6,050,200 6,050,200 6,195,774
========== ========== ========== ==========
Fully diluted earnings per
share..................... $ (.20) $ (.17) $ .77 $ .45
========== ========== ========== ==========
Shares used in
calculation............... 6,050,200 6,050,200 6,050,200 6,247,241
========== ========== ========== ==========
Pro forma net income (loss)
reflecting income taxes on
a separate return basis... $ (1,675) $ 435 $ 5,121 $ 3,355
========== ========== ========== ==========
<CAPTION>
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 1995 1996 1996
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Fiscal 1996 Quarters:
Revenues................... $ 13,404 $ 17,452 $ 21,450 $ 16,388
========== ========== ========== ==========
Operating income (loss).... $ (226) $ 4,069 $ 7,248 $ 2,467
Interest expense, net...... (560) (493) (395) (411)
Equity in income (loss) of
nonconsolidated
affiliates................ (2,087) (1,510) (318) 450
Credit (provision) for
income taxes.............. 448 (153) (1,005) (935)
Minority interests......... (298) (896) (1,585) (857)
Dividend on preferred stock
of subsidiary............. (150) (146) (126) (94)
---------- ---------- ---------- ----------
Net income (loss).......... $ (2,873) $ 871 $ 3,819 $ 620
========== ========== ========== ==========
Earnings per share......... $ (.47) $ .14 $ .63 $ .10
========== ========== ========== ==========
Shares used................ 6,050,200 6,050,200 6,050,200 6,050,200
========== ========== ========== ==========
Pro forma net income (loss)
reflecting income taxes on
a separate return basis... $ (3,623) $ 361 $ 3,713 $ 1,086
========== ========== ========== ==========
</TABLE>
For pro forma net income (loss), see Note 1--Basis of Presentation.
F-30
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 15: SEGMENT INFORMATION
The Company's operations are conducted through two industry segments: the
operation of the Condado Plaza and the management of hotels/casinos. Industry
segment information for the fiscal years ended June 30 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues
Condado Plaza................................ $ 55,697 $ 55,322 $ 57,530
WHGI........................................ 18,227 16,939 17,350
Intersegment revenues elimination--WHGI fees
charged to Condado Plaza................... (4,290) (3,567) (4,002)
-------- -------- --------
Total revenues............................ $ 69,634 $ 68,694 $ 70,878
======== ======== ========
Operating income (loss)
Condado Plaza............................... $ 6,348 $ 2,830 $ (1,465)
WHGI........................................ 11,923 10,837 9,174
General corporate administrative expenses... (1,184) (109) (85)
-------- -------- --------
Total operating income.................... $ 17,087 $ 13,558 $ 7,624
======== ======== ========
Identifiable assets
Condado Plaza............................... $ 55,385 $ 53,323 $ 57,879
WHGI........................................ 15,086 18,582 17,737
General investment and corporate............ 15,340 5,095 5,994
Investments in, receivables and advances to
nonconsolidated affiliates................. 31,708 27,734 29,696
-------- -------- --------
Total identifiable assets................. $117,473 $104,734 $111,306
======== ======== ========
Depreciation of property and equipment
Condado Plaza............................... $ 4,227 $ 4,120 $ 4,656
WHGI........................................ 777 769 681
-------- -------- --------
Total depreciation of property and
equipment................................ $ 5,004 $ 4,889 $ 5,337
======== ======== ========
Capital expenditures
Condado Plaza............................... $ 3,181 $ 1,078 $ 2,030
WHGI........................................ 41 71 36
-------- -------- --------
Total capital expenditures................ $ 3,222 $ 1,149 $ 2,066
======== ======== ========
</TABLE>
NOTE 16: CONTINGENT LIABILITIES
The Company is involved in various disputes arising in the ordinary course
of business, which may result in litigation. Management expects no material
adverse effect on the Company's financial condition as a result of these
matters.
NOTE 17: SALE OF PREFERRED STOCK SUBSEQUENT TO JUNE 30, 1997
The Board of Directors exercised the put provisions of a Put Option and Call
Option Agreement that was established on April 21, 1997 which resulted in the
Chairman of the Board purchasing on July 31, 1997, 300,000 shares of Series B
Preferred Stock for $3,000,000 in cash. Each share of Series B Preferred Stock
has 5 votes
F-31
<PAGE>
WHG RESORTS & CASINOS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
per share voting collectively with the common stockholders and a liquidation
preference of $10.00 per share plus accrued dividends, has a quarterly
dividend equal to the prime rate plus one half percent calculated on the
liquidation preference and the holder has a redemption right after three years
or earlier in the event of two unpaid quarterly dividends. The holder of the
Series B Preferred Stock can convert into shares of common stock. The
conversion price is $9.00, which is the lower of the closing price of the
voting common stock on its first day of official trading ($9.00) and the
closing price in the New York Stock Exchange at the close of business on the
business day immediately prior to the date of issuance of the Preferred Stock
($12.50).
NOTE 18: PROPOSED ACQUISITION SUBSEQUENT TO JUNE 30, 1997
On September 17, 1997, the Company executed an asset purchase agreement to
acquire an existing 127 room Hotel and related land next to the Condado Plaza
for $9,600,000, subject to certain terms and conditions, including
satisfactory due diligence. If the agreement is finalized, the Company intends
to finance the purchase price through long term financing and the use of
excess cash currently available.
F-32
<PAGE>
SCHEDULE II
WHG RESORTS & CASINOS INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- ------------ ----------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for
receivables:
1997.................. $474,000 $ 366,000 $-- $ 181,000 $649,000
======== ========== ==== ========== ========
1996.................. $399,000 $1,457,000 $-- $1,382,000 $474,000
======== ========== ==== ========== ========
1995.................. $755,000 $1,842,000 $-- $2,198,000 $399,000
======== ========== ==== ========== ========
Unrealized holding loss
on noncurrent
marketable equity
securities:
1997.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
1996.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
1995.................. $ -- $ -- $-- $ -- $ --
======== ========== ==== ========== ========
</TABLE>
- --------
(1) Included as a direct reduction of stockholders' equity.
F-33
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
Posadas de San Juan Associates
We have audited the accompanying balance sheets of Posadas de San Juan
Associates as of June 30, 1997 and 1996, and the related statements of
operations and deficit, and cash flows for each of the three years in the
period ended June 30, 1997. Our audits also included the financial statement
schedule of valuation and qualifying accounts for each of the three years in
the period ended June 30, 1997. These financial statements and schedule are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Posadas de San Juan
Associates at June 30, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended June 30, 1997,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997
F-34
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,681,100 $ 2,443,700
Trade accounts receivable, less allowance for
doubtful accounts of $606,300 in 1997 and $357,100
in 1996........................................... 3,692,000 2,370,700
Inventories........................................ 969,500 906,400
Prepaid expenses................................... 790,400 837,100
----------- -----------
Total current assets............................. 8,132,900 6,557,900
Land, building and equipment:
Land............................................... 3,300,000 3,300,000
Building........................................... 14,350,700 14,350,700
Building improvements.............................. 14,285,400 12,439,600
Furniture, fixtures and equipment.................. 36,114,600 33,814,000
Construction in progress........................... 113,400 --
----------- -----------
68,164,100 63,904,300
Less accumulated depreciation...................... 33,353,000 30,080,700
----------- -----------
34,811,100 33,823,600
Operating equipment, net............................. 523,000 570,700
Deferred financing costs, less accumulated
amortization of $662,400 in 1997 and $530,900 in
1996................................................ 402,000 533,500
Other assets......................................... 68,300 270,500
----------- -----------
Total assets......................................... $43,937,300 $41,756,200
=========== ===========
LIABILITIES AND DEFICIENCY IN PARTNERSHIP CAPITAL
Current liabilities:
Trade accounts payable............................. $ 4,078,700 $ 4,039,900
Accrued compensation and related benefits.......... 1,376,600 1,139,300
Other accrued liabilities.......................... 2,032,600 1,458,700
Due to affiliated companies........................ 237,600 11,600
Note payable to bank............................... -- 300,000
Current portion of long-term debt.................. 3,170,600 3,152,000
----------- -----------
Total current liabilities........................ 10,896,100 10,101,500
Long-term debt, net of current portion............... 20,831,400 23,805,000
Due to Williams Hospitality Group Inc................ 25,590,800 23,206,700
Deficiency in partnership capital:
Capital contribution............................... 7,000,000 7,000,000
Deficit............................................ (20,381,000) (22,357,000)
----------- -----------
Total deficiency in partnership capital.............. (13,381,000) (15,357,000)
----------- -----------
Total liabilities and deficiency in partnership
capital............................................. $43,937,300 $41,756,200
=========== ===========
</TABLE>
See accompanying notes.
F-35
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms.............................. $ 22,588,800 $ 22,016,700 $ 22,517,300
Food and beverage.................. 13,218,000 13,424,400 12,688,200
Casino............................. 19,582,200 18,117,600 22,575,400
Rental and other income............ 3,255,800 3,503,000 2,852,400
Less casino promotional
allowances........................ (6,905,300) (6,937,900) (7,836,300)
------------ ------------ ------------
Net revenues..................... 51,739,500 50,123,800 51,797,000
Costs and expenses:
Rooms.............................. 6,764,600 6,891,000 6,775,000
Food and beverage.................. 9,297,400 9,506,100 9,340,600
Casino............................. 9,729,000 10,716,800 14,027,100
Selling, general and
administrative.................... 8,803,200 9,094,000 8,953,700
Management and incentive management
fees.............................. 4,336,700 3,850,100 3,893,000
Property operation, maintenance and
energy costs...................... 4,509,700 4,803,200 4,416,800
Depreciation and amortization...... 3,438,800 3,595,300 3,617,300
------------ ------------ ------------
46,879,400 48,456,500 51,023,500
------------ ------------ ------------
Income from operations........... 4,860,100 1,667,300 773,500
Interest income...................... -- -- 2,500
Interest expense..................... (2,884,100) (3,026,800) (3,176,800)
------------ ------------ ------------
Net income (loss).................... 1,976,000 (1,359,500) (2,400,800)
Deficit at beginning of year......... (22,357,000) (20,997,500) (18,596,700)
------------ ------------ ------------
Deficit at end of year............... $(20,381,000) $(22,357,000) $(20,997,500)
============ ============ ============
</TABLE>
See accompanying notes.
F-36
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net income (loss)...................... $ 1,976,000 $(1,359,500) $(2,400,800)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........ 3,438,800 3,595,300 3,617,300
Provision for losses on accounts
receivable.......................... 150,600 1,278,200 3,880,400
Gain or sale of equipment............ -- (46,600) --
Changes in operating assets and
liabilities:
Amounts due to/from affiliated
companies.......................... 2,610,100 2,086,700 639,600
Trade accounts receivable........... (1,471,900) 503,900 833,200
Inventories and prepaid expenses.... (16,400) 193,600 21,600
Other assets........................ 167,200 (10,500) (125,600)
Trade accounts payable, accrued
expenses and other accrued
liabilities........................ 850,000 (990,600) (2,493,100)
----------- ----------- -----------
Net cash provided by operating
activities........................ 7,704,400 5,250,500 3,972,600
Investing Activities
Proceeds from sale of equipment...... -- 119,300 --
Purchases of property and equipment.. (4,059,700) (2,502,800) (3,310,000)
Purchases of operating equipment--
net................................. 47,700 78,800 635,900
----------- ----------- -----------
Net cash used in investing
activities........................ (4,012,000) (2,304,700) (2,674,100)
Financing Activities
Proceeds from long-term debt......... -- -- 156,200
Proceeds from short-term borrowings.. -- 300,000 --
Payment of short-term borrowings..... (300,000) -- --
Payments of long-term debt........... (3,155,000) (2,326,400) (2,046,800)
----------- ----------- -----------
Net cash used in financing
activities........................ (3,455,000) (2,026,400) (1,890,600)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents...................... 237,400 919,400 (592,100)
Cash at beginning of year.............. 2,443,700 1,524,300 2,116,400
----------- ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 2,681,100 $ 2,443,700 $ 1,524,300
=========== =========== ===========
Included in cash provided by operating
activities above:
Interest paid........................ $ 2,887,600 $ 3,031,400 $ 3,232,500
=========== =========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
Posadas de San Juan Associates (the Partnership), is a joint venture
organized under the General Partnership Laws of the State of New York,
pursuant to a Joint Venture Agreement dated July 27, 1984, as amended (the
Agreement). The Partnership is 50% owned by ESJ Hotel Corporation, a wholly-
owned subsidiary of Posadas de Puerto Rico Associates, Incorporated (Posadas
de Puerto Rico), with the remainder owned by entities owned by individual
investors (collectively, the Partners). Posadas de Puerto Rico is 100% owned
by WHG Resorts & Casinos Inc., a publicly-held corporation. The Partnership
shall continue to exist until July 27, 2024, unless terminated earlier by
mutual agreement of the Partners pursuant to the Agreement. The Agreement
provides that the net profits or losses of the Partnership shall be allocated
to the Partners in the same proportion as their capital contributions.
The Partnership owns and operates the El San Juan Hotel & Casino (the
"Hotel"), a luxury resort hotel and casino property in San Juan, Puerto Rico.
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
Land, Building and Equipment
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
Deferred Financing Costs
Deferred financing costs are being amortized over the maturities of the
related debt.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
F-38
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
food, beverage and hotel services furnished to patrons, commissions and
transportation costs.
Advertising Costs
Advertising costs are charged to operations as incurred. Advertising costs
for fiscal years 1997, 1996 and 1995 amounted to approximately $1,388,000,
$1,394,000 and $1,299,000, respectively.
Fair Values of Financial Instruments
The methods and assumptions used to estimate the fair value of the different
classes of financial instruments were as follows:
Long-term debt: The carrying amount of the long-term borrowings at June 30,
1997 approximates fair value. The fair values were estimated using discounted
cash flows, based on the current borrowing rates for similar types of
borrowing arrangements.
2. FURNITURE, FIXTURES AND EQUIPMENT FUND
In accordance with the terms of the Management Agreement and a certain loan
agreement (see Note 6), the Partnership is required to deposit cash equal to
4% of hotel gross revenues each month into a furniture, fixtures and equipment
fund.
Williams Hospitality Group Inc. (Williams Hospitality), a hotel/casino
management company that is an affiliated company, (on behalf of the
Partnership) withdraws from the fund amounts required to pay the cost of
replacements of, and additions to, furniture, fixtures and equipment at the
Hotel. At June 30, 1997 and 1996, there were no unexpended funds available.
3. TRADE ACCOUNTS RECEIVABLE
At June 30, 1997 and 1996 trade accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable--casino................... $2,001,600 $1,045,100
Less allowance for doubtful accounts................ 516,100 266,100
---------- ----------
1,485,500 779,000
Trade accounts receivable--hotel.................... 2,296,700 1,682,700
Less allowance for doubtful accounts................ 90,200 91,000
---------- ----------
2,206,500 1,591,700
---------- ----------
$3,692,000 $2,370,700
========== ==========
</TABLE>
Approximately 51% and 31% of the trade accounts receivable--casino, as of
June 30, 1997 and 1996, respectively, are from customers in Latin America.
F-39
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
4. DUE TO AFFILIATED COMPANY
Amounts due to affiliated company consist of fees earned by Williams
Hospitality and other payments made by Williams Hospitality for services
rendered on behalf of the Partnership. At June 30, 1997 and 1996 amounts due
to an affiliated company consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Due to Williams Hospitality--noncurrent:
Incentive management fees....................... $11,283,400 $ 9,878,900
Interest on incentive management fees........... 5,506,400 4,526,800
Basic management fees........................... 8,801,000 8,801,000
----------- -----------
$25,590,800 $23,206,700
=========== ===========
</TABLE>
Payment of substantially all the noncurrent amounts due to Williams
Hospitality are restricted under the terms of the Loan Agreement (see Note 6).
5. LINE OF CREDIT
The Partnership has available a $1,000,000 revolving line of credit with a
bank, which is payable on demand, bearing interest at one percentage over the
prime rate. The line of credit is collateralized by substantially all trade
accounts receivable and leases with concessionaires as well as the mortgage
covering long-term debt. As of June 30, 1997, there was no balance outstanding
under the line of credit.
6. LONG-TERM DEBT
Long-term debt at June 30, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage note payable to bank.......................... $23,250,000 $26,250,000
Capital lease obligation bearing interest at 11.18%
payable in monthly installments of $3,450, including
interest through 1999................................. 70,000 109,600
Capital lease obligation bearing interest at 9.5%
payable in monthly installments of $10,413, including
interest through 2001................................. 396,100 480,700
Chattel mortgage note payable bearing interest at 9%,
payable in monthly installments of $3,900, including
interest through 1998, collateralized with personal
property.............................................. 85,900 116,700
Note payable to a non-related party, non-interest
bearing, payable in two annual installments of
$100,000 beginning on October 1, 1998................. 200,000 --
----------- -----------
24,002,000 26,957,000
Less current portion................................... 3,170,600 3,152,000
----------- -----------
$20,831,400 $23,805,000
=========== ===========
</TABLE>
The mortgage note payable to bank is collateralized by all the Partnership's
real and personal property. The note is payable in accelerating monthly
installments with a final installment of $7,500,000 due in fiscal 2003.
Interest is payable at rates from 6.7% to 7.3% on $18,250,000 of the note.
Interest rates have not been fixed on
F-40
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
$5,000,000 of the note, which at June 30, 1997 was at an interest rate of
7.97%, which is reset every seven days. Under the terms of the loan agreement,
50% of the excess net free cash flow, as defined, each year is required to be
used to prepay the final installment of the note until it is reduced to
$3,000,000. Further, distributions to the partners and payment of basic and
incentive management fees and accrued interest thereon outstanding at the date
of the borrowing may only be paid to the extent of the remaining 50% of the
excess net free cash flow. Excess net free cash flow, as defined, amounted to
$648,000 at June 30, 1997.
Maturities of long-term debt are as follows:
Fiscal year ending in:
<TABLE>
<S> <C>
1998........................................................... $ 3,170,600
1999........................................................... 3,392,000
2000........................................................... 3,726,000
2001........................................................... 3,588,400
2002........................................................... 2,625,000
Thereafter..................................................... 7,500,000
-----------
$24,002,000
===========
</TABLE>
7. INCOME TAXES
The Partnership operated under the provisions of the Puerto Rico Tourism
Incentives Act of 1993 (the 1993 Act). The 1993 Act provides for a ten-year
grant which may be extended for an additional ten-year term. Major benefits of
this grant are: a 90% exemption from income taxes on hotel income through the
entire term of the grant, and a 90% exemption from municipal real and personal
property taxes for the first five years. The Partnership's casino operations
are not covered by the tax exemption grant and are fully taxable.
As of June 30, 1997, the Partnership had net operating loss carryforwards of
approximately $20,391,600, net of approximately $1,600,000 used to offset 1997
taxable income for Puerto Rico income tax purposes from its combined hotel and
casino operations and, accordingly, no Puerto Rico taxes have been provided in
the accompanying financial statements. Such losses may be utilized to offset
future Puerto Rico taxable income through June 30, 2001 as follows: 1998,
$2,064,000; 1999, $3,271,000; 2000, $3,896,600; 2001, $6,046,000 and 2002,
$5,114,000.
Following the provisions of SFAS No. 109, the deferred tax asset that
results from the cumulative net operating loss carryforwards has been fully
reserved.
For Puerto Rico income tax purposes the Partnership is taxed as if it were a
corporation. Income of the Partnership for federal income tax purposes is
taxable to the Partners.
8. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) dated October 2, 1986 with Williams Hospitality. The Management
Agreement provides that Williams Hospitality is to manage the Hotel until the
year 2005 for a basic management fee of 5% of the Hotel's gross revenues (as
defined in the Management Agreement) and an incentive management fee of 12% of
the Hotel's gross operating profits (as defined in the Management Agreement).
In addition, the Partnership is required to pay certain administrative
expenses incurred by Williams Hospitality in connection with management of the
Hotel.
F-41
<PAGE>
POSADAS DE SAN JUAN ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
During fiscal years 1997, 1996 and 1995 basic management fees amounted to
$2,932,200, $2,852,500 and $2,981,600, respectively. Incentive management fees
amounted to $1,404,500, $997,600 and $911,500, respectively, for the same
fiscal years. Administrative costs and service fees charged by Williams
Hospitality during fiscal years 1997, 1996 and 1995, amounted to $1,422,600,
$1,446,700 and $1,844,000, respectively.
During fiscal years 1997, 1996 and 1995, interest at 10% charged to the
Partnership by Williams Hospitality amounted to $987,900, $888,100 and
$797,000, respectively.
During fiscal years 1997, 1996 and 1995, the Partnership was charged by
Posadas de Puerto Rico $338,100, $243,600 and $92,800, respectively, for
certain services provided.
During fiscal years 1997, 1996 and 1995, the Partnership charged Posadas de
Puerto Rico $337,400, $256,100 and $191,500, respectively, for certain
services rendered.
F-42
<PAGE>
SCHEDULE II
POSADAS DE SAN JUAN ASSOCIATES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ --------------------- -------- ----------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS-- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Allowance for
receivables:
1997.................... $ 357,100 $ 150,600 $-- $ (98,599) $606,299
========== ========== ==== =========== ========
1996.................... $ 434,546 $1,278,200 $-- $ 1,355,646 $357,100
========== ========== ==== =========== ========
1995.................... $1,290,819 $3,880,413 $-- $ 4,736,686 $434,546
========== ========== ==== =========== ========
</TABLE>
F-43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
WKA El Con Associates
We have audited the accompanying balance sheets of WKA El Con Associates (a
joint venture partnership) as of June 30, 1997 and 1996, and the related
statements of operations and deficit, and cash flows for each of the three
years in the period ended June 30, 1997. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WKA El Con Associates as
of June 30, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that WKA
El Con Associates will continue as a going-concern. As more fully described in
Note 7, El Conquistador Partnership L.P., a 50% owned partnership, has not
renewed or replaced a letter of credit collateralizing $120,000,000 of
indebtedness. In the event that the letter of credit is not renewed or
replaced prior to November 9, 1997, the debt will be required to be repaid on
February 1, 1998. This condition raises substantial doubt about the
Partnership's ability to continue as a going concern. The financial statements
do not include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
Ernst & Young LLP
San Juan, Puerto Rico
August 11, 1997
F-44
<PAGE>
WKA EL CON ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash............................................... $ 3,600 $ 3,200
Notes receivable from affiliated company........... 18,343,200 16,116,000
Investment in Las Casitas Development Company...... 242,600 1,292,600
Capitalized interest, less accumulated amortization
of $100,400 in 1997 and $71,000 in 1996........... 1,368,100 1,397,500
Deferred debt issuance costs and other assets, less
accumulated amortization of $598,600 in 1997 and
$496,200 in 1996.................................. 769,800 872,200
------------ ------------
Total assets................................... $ 20,727,300 $ 19,681,500
============ ============
LIABILITIES AND DEFICIENCY IN PARTNERS' CAPITAL
Liabilities:
Long-term note payable........................... $ 5,527,400 $ 5,197,000
Due to affiliated company........................ 85,100 64,200
Due to partners.................................. 10,475,100 9,790,700
Losses in excess of equity investment in El
Conquistador Partnership L.P. .................. 12,464,200 7,762,600
------------ ------------
Total liabilities.............................. 28,551,800 22,814,500
Deficiency in partners' capital:
Contributed...................................... 20,286,200 20,286,200
Deficit.......................................... (28,110,700) (23,419,200)
------------ ------------
Total deficiency in partners' capital.......... (7,824,500) (3,133,000)
------------ ------------
Total liabilities and deficiency in partners'
capital....................................... $ 20,727,300 $ 19,681,500
============ ============
</TABLE>
See accompanying notes.
F-45
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF OPERATIONS AND DEFICIT
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income..................... $ 1,241,100 $ 1,150,100 $ 1,027,600
Costs and expenses:
Interest.......................... 1,078,400 1,145,800 1,137,600
Professional fees................. 20,900 40,100 83,400
Amortization...................... 131,800 142,000 163,200
------------ ------------ ------------
1,231,100 1,327,900 1,384,200
------------ ------------ ------------
Income (loss) before equity in
operations of investees............ 10,000 (177,800) (356,600)
Equity in operations of investees:
El Conquistador Partnership L.P... (4,701,500) (6,120,500) (13,738,400)
Las Casitas Development Company... -- 313,200 1,627,100
------------ ------------ ------------
(4,701,500) (5,807,300) (12,111,300)
------------ ------------ ------------
Net loss............................ (4,691,500) (5,985,100) (12,467,900)
Accumulated deficit at beginning of
year............................... (23,419,200) (17,434,100) (4,966,200)
------------ ------------ ------------
Accumulated deficit at end of year.. $(28,110,700) $(23,419,200) $(17,434,100)
============ ============ ============
</TABLE>
See accompanying notes.
F-46
<PAGE>
WKA EL CON ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------------------
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
Operating Activities
Net loss............................... $(4,691,500) $(5,985,100) $(12,467,900)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Amortization......................... 131,800 142,000 163,200
Equity in operations of affiliates
including $1,050,000 in 1997 and
$950,000 in 1996 in cash
distributions received.............. 5,751,600 6,757,300 12,111,300
Changes in operating assets and
liabilities:
Accrued interest income added to
notes receivable.................... (1,177,200) (1,122,800) (1,000,600)
Other receivables.................... -- -- 13,200
Accrued interest expense added to
long-term liabilities............... 330,400 1,102,900 974,500
Accounts payable..................... -- -- (36,700)
Due to affiliated company............ -- 58,900 --
----------- ----------- ------------
Net cash provided by (used in)
operating activities.............. 345,100 953,200 (243,000)
Investing Activities
Sale of certificate of deposit held in
escrow................................ -- 682,500 100,000
Increase on deferred debt issuance
costs and other assets................ -- -- (230,400)
Increase in notes receivable from
affiliated company.................... (1,050,000) (950,000) (423,500)
----------- ----------- ------------
Net cash used in investing
activities........................ (1,050,000) (267,500) (553,900)
Financing Activities
Partners' contributed capital.......... -- 1,295,700 1,870,500
Partners' loans--net................... 684,400 (852,900) 323,500
Payments to affiliated company......... 20,900 (1,125,300) (1,397,100)
----------- ----------- ------------
Net cash provided by (used in)
financing activities.................. 705,300 (682,500) 796,900
----------- ----------- ------------
Net increase in cash................... 400 3,200 --
Cash at beginning of year.............. 3,200 -- --
----------- ----------- ------------
Cash at end of year.................... $ 3,600 $ 3,200 $ --
=========== =========== ============
</TABLE>
See accompanying notes.
F-47
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
WKA El Con Associates (the Partnership) is a joint venture organized under
the General Partnership Law of the State of New York, pursuant to a Joint
Venture Agreement (the Agreement) dated January 9, 1990, as amended, for the
purpose of becoming a general and limited partner of El Conquistador
Partnership L.P. (El Con). The Partnership is owned 46.54% by WHG El Con Corp.
(formerly known as WMS El Con Corp.), which is wholly-owned by WHG Resorts &
Casino Inc., 37.23% by AMK Conquistador, S.E. and 16.23% by Hospitality
Investor Group, S.E. The Partnership shall continue to exist until January 9,
2040, unless terminated earlier pursuant to the Agreement. Net profits or
losses of the Partnership will be allocated to the partners in accordance with
the terms of the Agreement.
The Partnership is a 50% limited partner in Las Casitas Development Company
I, S en C (S.E.) ("Las Casitas"), a joint venture constructing and selling
condominiums on property adjacent to El Con.
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investments in Affiliated Companies
The investments in affiliated companies are accounted for under the equity
method. El Con equity is recorded by the Partnership based on El Con's fiscal
year of March 31. Las Casitas equity is recorded by the Partnership based on
Las Casitas' fiscal year of June 30. Capitalized interest is being amortized
by the straight-line method over the estimated useful life of the El
Conquistador property.
Deferred Debt Issuance Costs and Other Assets
Deferred debt issuance costs include legal and bank fees incurred in
connection with the issuance of the debt, and are being amortized over the
maturity of the related debt. Certain other capital and pre-opening costs
relating to El Con were incurred by the Partnership and are being amortized
over 5 to 50 years.
Fair Values of Financial Instruments
Note payable: The carrying amount of the note payable at June 30, 1997
approximates fair value. The fair value was estimated using discounted cash
flows, based on the current borrowing rates for similar types of borrowing
arrangements.
F-48
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
2. NOTES RECEIVABLE FROM AFFILIATED COMPANY
At June 30, 1997 and 1996 notes receivable from El Con consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note receivable due on demand......................... $ 136,000 $ 136,000
Note receivable due through May, 2002 (See Note 5)....... 4,000,000 4,000,000
Subordinated notes receivable due in 2003 to 2005 (See
Note 4).............................................. 8,229,700 8,229,700
Accrued interest receivable........................... 3,977,500 2,800,300
Deficiency loan participation......................... 2,000,000 950,000
----------- -----------
$18,343,200 $16,116,000
=========== ===========
</TABLE>
Repayment of the notes, including accrued interest, is subordinated to other
long-term debt of El Con.
3. INVESTMENT IN AFFILIATED COMPANIES
In 1991, the Partnership borrowed $9,000,000 from Williams Hospitality Group
Inc. (Williams Hospitality), a hotel/casino management company that is an
affiliated company, and invested the proceeds in the partnership capital of El
Con, a joint venture organized to acquire the El Conquistador property. The
Partnership owns a 50% interest, as both a general and limited partner, of El
Con (See Note 4).
Summarized financial information for El Con as of March 31, 1997 and 1996
and for the years then is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Total assets...................................... $205,430,000 $211,691,000
Total liabilities................................. 218,359,000 215,216,000
Deficiency in partners capital.................... 12,929,000 3,525,000
Revenues.......................................... 92,958,000 89,214,000
Net loss.......................................... 9,403,000 12,241,000
</TABLE>
The Partnership's investment in Las Casitas amounts to $5,000.
4. DUE TO AFFILIATED COMPANY AND PARTNERS
At various times, the partners loaned the Partnership $8,229,700 under the
terms of loan agreements. The notes are payable in 2003 to 2005 and bear
interest at the prime rate commencing on various dates. The Partnership has
advanced the same amount under a subordinated note to El Con under the same
terms as the borrowing from the partners. (See Note 2).
In November 1993, the partners advanced $782,500 to the Partnership that was
invested in a bank certificate of deposit. During fiscal year 1996 the
remaining balance of $682,500 was withdrawn from the certificate and
distributed to the partners. The certificate of deposit was held in escrow and
was pledged as collateral to the bank for a bank loan of an equal amount to El
Con. Interest accrued on the partners' advances at the same interest rate
earned on the certificate of deposit.
During fiscal year 1997 and 1996, respectively, the Partnership purchased
from Williams Hospitality $1,050,000 and $950,000, respectively, of
participation in a deficiency loan to El Con. The loan and interest at 9.16%
are payable from specified future cash flow of El Con. The partnership
guarantees a revolving credit facility with a bank in the aggregate amount of
up to $4,000,000 of El Conquistador.
F-49
<PAGE>
WKA EL CON ASSOCIATES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
JUNE 30, 1997
5. LONG-TERM NOTE PAYABLE
The long-term note payable to a bank includes accrued interest of $1,527,400
and $1,197,000 at June 30, 1997 and 1996, respectively. The note is payable in
quarterly installments of $250,000 commencing in May 2000. Any unpaid
principal and interest is payable in May 2002. The note bears interest at a
variable rate, computed quarterly, equal to LIBOR, plus 1.75%. Under the terms
of the Credit Facility Agreement dated May 5, 1992, interest payments are
deferred during the first five years. The $4,000,000 borrowing was loaned to
El Conquistador under similar terms. (See Note 2).
The note is collateralized by second mortgages on parcels of land owned by
Williams Hospitality and Posadas de Puerto Rico Associates, Incorporated,
affiliated companies through common ownership, with a cost of approximately
$3,761,000, and a guarantee of $1,000,000 by WHG Resorts & Casino Inc., the
ultimate owner of WHG El Con Corp.
6. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
partner reports their distributive share of the Partnership's profit or losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements. Income or loss
of the Partnership for Federal income tax purposes is reported by the
partners.
7. REFINANCING
El Con, a partnership 50% owned by the Partnership, has not renewed or
replaced a letter of credit collateralizing $120,000,000 of Industrial Revenue
Bonds, which expires on March 9, 1998. The debt is required to be repaid on
February 1, 1998 in the event the letter of credit is not renewed or replaced
prior to November 9, 1997. El Con has retained an investment banking firm to
assist in structuring the refinancing of El Con's debt. Based on operating
history of the El Con resort, El Con's management believes such refinancing
will be achieved, but there can be no assurance thereof. If such refinancing
is not renewed or replaced, it raises substantial doubt about El Con's and the
Partnership's ability to continue as going-concerns.
F-50
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Partners
El Conquistador Partnership L.P.
We have audited the accompanying balance sheets of El Conquistador
Partnership L.P. as of March 31, 1997 and 1996, and the related statements of
operations and (deficiency in) partners' capital, and cash flows for each of
the three years in the period ended March 31, 1997. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of El Conquistador
Partnership L.P. at March 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that El
Conquistador Partnership L.P. will continue as a going-concern. As more fully
described in Note 13, to date El Conquistador Partnership L.P. has not renewed
or replaced a letter of credit collateralizing $120,000,000 of indebtedness.
In the event that the letter of credit is not renewed or replaced prior to
November 9, 1997, the debt will be required to be repaid on February 1, 1998.
This condition raises substantial doubt about the El Conquistador Partnership
L.P.'s ability to continue as a going concern. The financial statements do not
include any adjustments to reflect the possible future effects on the
recoverability and classifications of assets or the amounts and
classifications of liabilities that may result from the outcome of this
uncertainty.
Ernst & Young LLP
San Juan, Puerto Rico
May 2, 1997
F-51
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash.............................................. $ 2,380,218 $ 856,983
Restricted cash and investments held by bank...... 3,360,607 2,879,355
Trade accounts receivable, less allowance for
doubtful accounts of $269,115 in 1997 and
$301,765 in 1996................................. 4,764,607 5,302,884
Due from affiliated companies..................... 428,987 314,999
Inventories....................................... 1,662,877 1,522,463
Prepaid expenses and other current assets......... 1,020,716 945,905
------------ ------------
Total current assets............................ 13,618,012 11,822,589
Due from affiliated company........................ 418,957 817,868
Land, building and equipment:
Land.............................................. 14,372,707 14,372,707
Building.......................................... 158,039,190 158,039,190
Furniture, fixture and equipment.................. 32,664,796 31,359,202
------------ ------------
205,076,693 203,771,099
Less accumulated depreciation..................... 21,116,551 14,777,283
------------ ------------
183,960,142 188,993,816
Operating equipment, net........................... 1,592,219 1,469,350
Deferred debt issuance costs, net of accumulated
amortization of $5,709,747 in 1997 and $4,731,745
in 1996........................................... 2,980,622 3,958,624
Deferred pre-opening costs, net of accumulated
amortization of $10,519,175 in 1997 and $8,751,425
in 1996........................................... 2,860,504 4,628,254
------------ ------------
Total assets.................................... $205,430,456 $211,690,501
============ ============
LIABILITIES AND DEFICIENCY IN PARTNERS' CAPITAL
- -----------------------------------------------
Current liabilities:
Trade accounts payable............................ $ 5,474,496 $ 7,657,546
Advance deposits.................................. 5,572,317 3,568,390
Accrued interest.................................. 1,785,687 1,510,080
Other accrued liabilities......................... 5,271,335 4,673,189
Due to affiliated companies....................... 545,824 652,896
Note payable to bank.............................. 1,500,000 2,773,359
Current portion of long-term debt................. 120,000,000 --
Current portion of chattel mortgages and capital
lease obligations................................ 2,679,819 2,444,993
------------ ------------
Total current liabilities....................... 142,829,478 23,280,453
Long-term debt..................................... 25,000,000 145,000,000
Chattel mortgages and capital lease obligations,
net of current portion............................ 1,660,040 4,324,358
Due to affiliated companies........................ 11,491,977 8,531,671
Due to partners.................................... 37,377,424 34,079,309
Deficiency in partners' capital:
Limited partners.................................. (10,989,193) (2,996,497)
General partners.................................. (1,939,270) (528,793)
------------ ------------
Total deficiency in partners' capital........... (12,928,463) (3,525,290)
------------ ------------
Total liabilities and deficiency in partners'
capital.......................................... $205,430,456 $211,690,501
============ ============
</TABLE>
See accompanying notes.
F-52
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF OPERATIONS AND (DEFICIENCY IN) PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms............................. $ 40,023,903 $ 38,817,160 $ 37,942,821
Food and beverage................. 26,235,365 26,188,693 27,298,340
Casino............................ 6,005,242 6,179,133 6,054,569
Rental and other income........... 21,959,328 19,165,969 14,652,328
------------ ------------ ------------
94,223,838 90,350,955 85,948,058
Less casino promotional
allowances....................... (1,265,710) (1,136,499) (1,205,380)
------------ ------------ ------------
Net revenues.................... 92,958,128 89,214,456 84,742,678
Costs and expenses:
Rooms............................. 12,377,694 12,853,157 14,755,239
Food and beverage................. 17,602,484 17,638,186 20,797,173
Casino............................ 3,848,981 3,686,904 3,923,817
Selling, general and
administrative................... 14,657,312 12,992,841 18,115,433
Management and incentive
management fees.................. 5,680,355 5,394,675 3,703,819
Property operation, maintenance
and energy costs................. 12,382,577 12,396,063 14,408,347
Depreciation and amortization..... 9,146,664 10,499,296 11,124,075
Other expenses.................... 9,702,212 9,201,228 9,722,662
------------ ------------ ------------
85,398,279 84,662,350 96,550,565
------------ ------------ ------------
Income (loss) from operations... 7,559,849 4,552,106 (11,807,887)
Interest income..................... 199,110 228,625 467,922
Interest expense.................... 17,162,132 17,021,764 16,136,755
------------ ------------ ------------
Net loss............................ (9,403,173) (12,241,033) (27,476,720)
(Deficiency in) partners' capital at
beginning of year.................. (3,525,290) 8,715,743 36,191,325
Partners' capital contribution...... -- -- 1,138
------------ ------------ ------------
(Deficiency in) partners' capital at
end of year........................ $(12,928,463) $ (3,525,290) $ 8,715,743
============ ============ ============
</TABLE>
See accompanying notes.
F-53
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................ $ (9,403,173) $(12,241,033) $(27,476,720)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization..... 9,146,664 10,499,296 11,124,075
Provision for losses on accounts
receivable....................... 205,400 363,245 1,808,641
Incentive management fees......... 2,375,526 2,224,381 679,259
Deferred interest expense to
partners and affiliates.......... 3,100,085 2,995,431 2,063,981
Changes in operating assets and
liabilities:
Restricted cash and investments
held by bank................... (481,252) 503,353 2,549,446
Trade accounts receivable....... 332,877 1,987,789 2,187,211
Inventories..................... (140,414) 529,503 61,249
Prepaid expenses and other
current assets................. (74,811) 26,105 491,032
Trade accounts payable and
advance deposits............... (179,123) (3,663,803) (1,323,693)
Accrued interest and other
accrued liabilities............ 873,753 (1,220,058) 1,156,483
Affiliated companies, net....... 99,017 (97,985) 1,967,073
------------ ------------ ------------
Net cash provided by (used in)
operating activities............... 5,854,549 1,906,224 (4,711,963)
INVESTING ACTIVITIES
Purchases of property and
equipment.......................... (1,305,594) (826,611) (3,525,762)
Usage of operating equipment, net... (122,869) (37,454) 523,641
------------ ------------ ------------
Net cash used in investing
activities......................... (1,428,463) (864,065) (3,002,121)
FINANCING ACTIVITIES
Payments of principal on long-term
debt............................... (2,429,492) (2,198,146) (1,976,625)
Proceeds from long-term debt........ -- -- 776,000
Proceeds from notes payable to
bank............................... 9,500,000 7,684,685 --
Payments of principal on notes
payable to bank.................... (10,773,359) (6,549,685) (200,000)
Proceeds from partners' and
affiliated loans, and capital
contributions...................... 800,000 -- 8,698,134
------------ ------------ ------------
Net cash used in financing
activities......................... (2,902,851) (1,063,146) 7,293,509
------------ ------------ ------------
Net increase (decrease) in cash..... 1,523,235 (20,987) (420,575)
Cash at beginning of year........... 856,983 877,970 1,298,545
------------ ------------ ------------
Cash at end of year................. $ 2,380,218 $ 856,983 $ 877,970
============ ============ ============
Supplemental disclosure of cash flow
information:
Interest paid..................... $ 13,789,097 $ 14,026,453 $ 14,314,600
============ ============ ============
</TABLE>
See accompanying notes.
F-54
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
Organization
El Conquistador Partnership L.P. (the Partnership), is a limited partnership
organized under the laws of Delaware, pursuant to a Joint Venture Agreement
dated January 12, 1990 (the Agreement). The Partnership is 50% owned by WKA El
Con Associates (WKA El Con), a partnership owned by several partners
affiliated with Williams Hospitality Group Inc. (Williams Hospitality), and
50% by Kumagai Caribbean, Inc. (Kumagai), a wholly-owned subsidiary of Kumagai
International USA, Inc. The joint venture partners (Partners) are both General
Partners and Limited Partners in the Partnership. The Partnership shall
continue to exist until March 31, 2030, unless terminated earlier by mutual
agreement of the General Partners. The Agreement provides that net profits or
losses of the Partnership after deducting a preferred cumulative annual return
of 8.5% on the Partners unrecovered capital accounts, as defined, will be
allocated to the Partners on a 50-50 ratio subject to certain exceptions, as
defined.
The Partnership owns and operates a luxury resort hotel and casino in Las
Croabas, Puerto Rico (the Resort).
Basis of Presentation
The financial statements have been prepared in conformity with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories, which consist mainly of food, beverages and supplies, are
valued at the lower of cost (first-in, first-out method) or market.
Land, Building and Equipment
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
Deferred Debt Issuance Costs
Debt issuance costs include legal and underwriting fees, other fees incurred
in connection with the financing and other costs. These costs are being
amortized on a straight-line basis over the term of the debt.
Deferred Pre-Opening Costs
Pre-opening costs consist of amounts incurred in connection with the
marketing, organization, planning and development of the Resort. Such costs
include staffing, marketing, legal and other costs incurred prior to the
commencement of operations of the Resort. The costs are being amortized on a
straight-line basis over a five year period through November 1998.
Casino Revenues
Casino revenues are the net win from gaming activities, which is the
difference between gaming wins and losses.
F-55
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
Casino Promotional Allowances
Casino promotional allowances represent the retail value of complimentary
rooms, food, beverage and hotel services furnished to patrons.
2. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
Pursuant to the terms of the bond agreement (see Note 8), the Partnership
had cash and investments on deposit with the trustee for the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Interest due May 1.................................. $1,778,961 $1,584,000
Interest due August 1............................... 1,581,646 1,295,355
---------- ----------
$3,360,607 $2,879,355
========== ==========
</TABLE>
3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable--hotel................... $4,559,108 $5,259,478
Less allowance for doubtful accounts............... 144,615 217,362
---------- ----------
4,414,493 5,042,116
Trade accounts receivable--casino.................. 474,614 345,171
Less allowance for doubtful accounts............... 124,500 84,403
---------- ----------
350,114 260,768
---------- ----------
Trade accounts receivable, net..................... $4,764,607 $5,302,884
========== ==========
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) with Williams Hospitality. The Management Agreement provides that
Williams Hospitality will manage the Resort for a period of 20 years for a
basic management fee of 3.5% of the Resorts' gross revenues, as defined, and
an incentive management fee of 10% of the Resorts' operating profit, as
defined. Incentive management fees accrued each year are not payable until
significant cash flows levels are achieved. In addition, the Partnership is
required to pay certain administrative expenses incurred by Williams
Hospitality in connection with management of the Resort.
During fiscal years 1997 and 1996, basic management fees amounted to
$3,305,000 and $3,170,000, respectively. Incentive management fees amounted to
approximately $2,376,000 and $2,224,000 during fiscal years 1997 and 1996,
respectively. In addition, Williams Hospitality charged the Partnership
approximately $3,258,000 and $2,728,000 in fiscal years 1997 and 1996,
respectively, for services provided to the Resort.
In addition, the Partnership was charged by Posadas de Puerto Rico
Associates, Incorporated (Posadas de Puerto Rico), hotel and casino operations
affiliated through common ownership, approximately $410,000 and $437,000 in
fiscal years 1997 and 1996, respectively, for services provided to the Resort.
F-56
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
As of March 31, 1997 each partner had advanced $8,365,685 to the Partnership
under notes that are due for various periods up to ten years with interest at
the Citibank, N.A. in New York base rate. Repayment of interest and principal
is subordinated to other long-term debt. In addition, each partner had
advanced to the Partnership $4,000,000 under a May 5, 1992 loan agreement. The
loan agreement provides for the payment of interest at a variable rate,
computed quarterly, equal to LIBOR plus 1.75%. Interest payments will be
deferred during the first five years. The principal and deferred interest
accrued at March 31, 1997 is payable in quarterly installments of $250,000
commencing in March 2000 and a final lump-sum payment in February 2002. The
loan is collateralized by a subordinated pledge of the Partnership's assets.
As of March 31, 1997 each partner had provided $3,800,000 to cover cash flow
deficiency in the Partnership's operations as provided by the Agreement. The
deficiency loans consist of $3,800,000 in cash by Kumagai, and the conversion
of amounts due from the Partnership to Williams Hospitality to loans for WKA
El Con. The deficiency loans bear interest at 9.16%. Repayment of interest and
principal is subordinated to other long-term debt.
As of March 31, 1997, the outstanding balance of advances made by the
Partnership to Williams Hospitality for the purchase of transportation
equipment leased to the Partnership under a five year service agreement
amounted to $727,200. Service agreement payments by the Partnership are equal
to the $39,819 monthly amounts receivable under the advance. Repayment of the
advances by Williams Hospitality are limited to amounts payable under the
service agreement. This transportation equipment is pledged as collateral by
Williams Hospitality to the Partnership's chattel mortgage notes.
In addition, a subsidiary of Williams Hospitality financed other
transportation equipment from an external borrowing amounting to $441,000
repayable over five years. Monthly payments amount to $9,699. Also, in
February 1997, a subsidiary of Williams Hospitality financed a ferryboat from
an external borrowing amounting to $456,000, repayable over seven years.
Monthly payments amount to $7,561. The Partnership chartered the
transportation equipment and ferryboat under terms similar to the transaction
described in the preceding paragraph.
In October 1996, each partner advanced $400,000 as required by a loan
agreement (see Note 6). The notes bear interest at the prime rate at the Chase
Bank in the New York base rate. Repayment of principal are subordinated to
other debt.
The chattel mortgage notes payable (see Note 7) are collateralized by a bank
standby letter of credit of $3,423,000. The letter of credit is collateralized
by certificates of deposit for $2,000,000 issued by the bank in equal amounts
to Williams Hospitality and Kumagai. The chattel mortgage notes, and capital
leases are guaranteed by Williams Hospitality and Kumagai.
5. NOTES PAYABLE TO BANK
On October 4, 1996 the Partnership entered into an amendment to a loan
agreement whereby the Government Development Bank for Puerto Rico (GDB)
extended the Partnership a $6,000,000 credit facility. The notes issued under
the credit facility will bear interest at 1% over LIBOR, and are secured by a
mortgage note on the Partnership's real property and a leasehold mortgage note
on leased land of $120,000. At March 31, 1997 the Partnership had outstanding
borrowings of $1,500,000 with an interest rate at March 31, 1997 of 6.56%.
As of March 31, 1996, the Partnership's borrowings of $2,500,000 with a bank
were repaid during fiscal year 1997.
F-57
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
6. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to the Partnership and other payments made by
Williams Hospitality, and for services rendered by Posadas de Puerto Rico and
Posadas de San Juan. Amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1997 1996
----------- ----------
<S> <C> <C>
Current:
Due to Williams Hospitality:
Basic management fees............................ $ 435,309 $ 414,718
Other............................................ 83,891 195,523
Due to Posadas de Puerto Rico.................... 26,624 37,380
Due to Posadas de San Juan....................... -- 5,275
----------- ----------
$ 545,824 $ 652,896
=========== ==========
Non current:
Affiliate:
Due to Williams Hospitality:
Incentive management fees...................... $ 5,542,528 $3,167,002
Interest at 10% on incentive management fees... 338,405 89,350
Advances....................................... 3,800,000 3,800,000
Interest on advances........................... 856,282 503,368
Other.......................................... 375,528 375,528
----------- ----------
10,912,743 7,935,248
Due to KG Caribbean.............................. 579,234 596,423
----------- ----------
$11,491,977 $8,531,671
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Partners:
Due to WKA El Con:
Advances......................................... $12,765,685 $12,365,685
Interest on advances............................. 3,594,886 2,522,285
Due to Kumagai:
Advances......................................... 16,565,685 16,165,685
Interest on advances............................. 4,451,168 3,025,654
----------- -----------
$37,377,424 $34,079,309
=========== ===========
</TABLE>
F-58
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
7. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS
Chattel mortgages and capital lease obligations on equipment consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Chattel mortgage notes payable bearing interest at
9%, payable in monthly installments of $215,784,
including interest, through 1998, collateralized
with personal property.............................. $3,868,202 $6,023,820
Capital lease obligations bearing interest at 11.5%,
payable in monthly installments of $28,335,
including interest, through 1998, collateralized
with personal property, net of $48,307 in 1997 and
$121,571 in 1996 representing interest.............. 471,657 745,531
---------- ----------
4,339,859 6,769,351
Less current portion................................. 2,679,819 2,444,993
---------- ----------
$1,660,040 $4,324,358
========== ==========
</TABLE>
Maturities of chattel mortgages and capital lease obligations are as follows:
<TABLE>
<S> <C>
1998........................................................... $2,679,819
1999........................................................... 1,660,040
----------
$4,339,859
==========
</TABLE>
See Note 4 for additional collateral and guarantees.
Assets and accumulated depreciation recorded under capital lease obligations
are included in land, building and equipment as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1997 1996
---------- ----------
<S> <C> <C>
Equipment............................................. $1,288,373 $1,288,373
Less accumulated depreciation......................... 880,393 622,717
---------- ----------
$ 407,980 $ 665,656
========== ==========
</TABLE>
8. LONG-TERM DEBT
At March 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
Industrial Revenue Bonds Series A................. $ 90,000,000 $ 90,000,000
Industrial Revenue Bonds Series B................. 30,000,000 30,000,000
Government Development Bank of Puerto Rico........ 25,000,000 25,000,000
------------ ------------
145,000,000 145,000,000
Less current portion.............................. 120,000,000 --
------------ ------------
$ 25,000,000 $145,000,000
============ ============
</TABLE>
F-59
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
On February 7, 1991 the Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority (the Authority)
sold industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds
to the Partnership to be used for the payment of project costs pursuant to a
Loan Agreement. The Loan Agreement provides that the Partnership will pay all
interest and principal on the Bonds.
The Authority issued 1991 Series A, Industrial Revenue Bonds for $90,000,000
and 1991 Series B, Industrial Revenue Bonds for $30,000,000.
Commencing on May 1, 1996, the Bonds are subject to redemption at the
Partnership's option at par plus accrued interest, if any. The Bonds are due
on November 1, 1999 and interest is payable quarterly. The 1991 Series A Bonds
and the 1991 Series B Bonds bear interest at a variable rate, computed
quarterly, equal to 100% and 94%, respectively, of a LIBOR rate minus 1/8th of
1%. Effective November 1, 1996, the interest rate on the 1991 Series A Bonds
increased to 100% of the LIBOR rate. On February 7, 1991 the Partnership
entered into an Interest Swap Agreement that expires on March 8, 1998 by which
the Partnership agrees to pay, effective May 1, 1991, a fixed rate of 7.55% on
the outstanding principal of $120,000,000 in exchange for the counterparty's
obligation to pay the variable interest rate described above.
The Loan Agreement provides that the Partnership will deposit with the
trustee all interest which will become due not later than the 124th day
preceding the date of payment. The Bonds are collateralized by a letter of
credit, that terminates on February 7, 1998, issued by the Mitsubishi Bank,
Limited.
The Partnership pays an annual letter of credit fee of approximately 1.25%
of the Bond principal except under certain circumstances the rate may be
reduced to 1.2%. In addition, in connection with the letter of credit the
Partnership pays an annual agent's fee of approximately .25% of the Initial
Stated Amount, as defined.
Under the provisions of a term loan agreement with the GDB, the Partnership
borrowed $25,000,000 for the payment of project costs. The loan is due on
February 7, 2006. The loan agreement provides for a variable interest rate
equivalent to a LIBOR rate minus .5% plus an add-on margin as provided in the
loan agreement. Interest is payable quarterly in arrears.
Commencing on April 1, 1993, the Partnership is required to deposit annually
with an escrow agent 50% of the Available Cash Flow, as defined in the Loan
Agreement with GDB, up to a maximum of $1,666,700 plus any prior year
requirement in arrears. Through March 31, 1997, there had been no amounts
deposited in escrow under this provision.
The Bonds and the term loan with GDB are collateralized by a first and
second mortgage lien on the Resort, a chattel mortgage on personal property,
and an assignment of various contracts and a management agreement with a
related party. The collateral is subject to a subordination agreement in favor
of the Mitsubishi Bank, Limited.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 "Disclosures About
Fair Value of Financial Instruments", requires the disclosure of the fair
value of the Partnership's financial instruments at March 31, 1997 and 1996.
The carrying amount of cash and investments, notes payable to bank, chattel
mortgage notes and capitalized leases approximates fair value because of the
short maturity of the instruments or recent issuance. The fair value of the
Partnership's long-term debt has not been determined because similar terms and
conditions may no longer be available.
F-60
<PAGE>
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
MARCH 31, 1997
10. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant
to an election submitted to the Puerto Rico Treasury Department. Instead, each
Partner reports their distributive share of the Partnership's profit and
losses in their respective income tax returns and, therefore, no provision for
income taxes has been made in the accompanying financial statements.
During 1997, the Partnership was granted a tax exemption grant under the
provisions of the Puerto Rico Tourism Incentives Act of 1993 (the Tourism
Act). The Tourism Act provides for a ten-year grant which may be extended for
an additional ten-year term. Major benefits of this Act are: a 90% exemption
from income taxes on hotel income, and a 90% exemption from municipal real and
personal property taxes through the entire term of the grant. The
Partnership's casino operations are not covered by the tax exemption grant and
are fully taxable.
11. ADVERTISING COSTS
The Partnership recognizes the costs of advertising as expense in the year
in which they are incurred. Advertising costs amounted to approximately
$1,446,000 and $847,000 for fiscal years 1997 and 1996, respectively.
12. COMMITMENTS
The Partnership leases land under an operating lease agreement for thirty-
one years with renewal options for two five-year periods. Following are the
minimum annual rental payments on the operating lease subsequent to March 31,
1997:
<TABLE>
<S> <C>
1998........................................................... $ 190,000
1999........................................................... 210,000
2000........................................................... 210,000
2001........................................................... 210,000
2002........................................................... 210,000
Thereafter..................................................... 5,840,000
----------
$6,870,000
==========
</TABLE>
Total rent expense for fiscal years 1997, and 1996 amounted to approximately
$1,391,000 and $985,000, respectively.
13. REFINANCING
The Industrial Revenues Bonds amounting to $120,000,000 at March 31, 1997
are collateralized by a letter of credit which expires on March 9, 1998. Under
the terms of the loan agreement, such debt is required to be repaid on
February 1, 1998 in the event the letter of credit is not renewed or replaced
prior to November 9, 1997 (See Note 8). El Conquistador Partnership L.P. has
engaged an investment banking firm to assist in structuring the refinancing of
El Conquistador Partnership L.P.'s debt. Based on operating history of the
Resort, El Conquistador Partnership L.P.'s management believes such
refinancing will be achieved, but there can be no assurance thereof. If such
refinancing is not renewed or replaced, it raises substantial doubt about El
Conquistador Partnership L.P.'s ability to continue as a going-concern.
F-61
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BETWEEN
PATRIOT AMERICAN HOSPITALITY, INC.
AND
WYNDHAM HOTEL CORPORATION
DATED AS OF APRIL 14, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 1. THE MERGER................................................ A-2
1.1 The Merger................................................ A-2
1.2 The Closing............................................... A-3
1.3 Effective Time............................................ A-3
ARTICLE 2. THE WYNDHAM/BMOC SUBSCRIPTION............................. A-4
2.1 Wyndham/BMOC Subscription Agreement....................... A-4
2.2 Subscribed Shares......................................... A-4
ARTICLE 3. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION............................................... A-4
3.1 Charter................................................... A-4
3.2 Bylaws.................................................... A-4
ARTICLE 4. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION....... A-5
4.1 Directors of the Surviving Corporation.................... A-5
4.2 Officers of the Surviving Corporation..................... A-6
4.3 Directors of BMOC......................................... A-6
4.4 Officers of BMOC.......................................... A-7
ARTICLE 5. EXCHANGE OF STOCK......................................... A-7
5.1 Outstanding Paired Shares of Patriot Stock and BMOC
Stock..................................................... A-7
5.2 Conversion of Wyndham Common Stock........................ A-8
5.3 Cash Election............................................. A-9
5.4 Exchange of Certificates Representing Wyndham Common
Stock..................................................... A-11
5.5 Return of Exchange Fund................................... A-12
5.6 Lost or Stolen Certificates............................... A-13
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF WYNDHAM................. A-13
6.1 Existence; Good Standing; Authority; Compliance With Law.. A-13
6.2 Authorization, Validity and Effect of Agreements.......... A-14
6.3 Capitalization............................................ A-14
6.4 Subsidiaries.............................................. A-15
6.5 Other Interests........................................... A-15
6.6 No Violation.............................................. A-15
6.7 SEC Documents............................................. A-16
6.8 Litigation................................................ A-16
6.9 Absence of Certain Changes................................ A-17
6.10 Taxes..................................................... A-17
6.11 Books and Records......................................... A-18
6.12 Properties................................................ A-18
6.13 Environmental Matters..................................... A-18
6.14 Employee Benefit Plans.................................... A-20
6.15 Labor Matters............................................. A-20
6.16 No Brokers................................................ A-21
6.17 Opinion of Financial Advisors............................. A-21
6.18 Related Party Transactions................................ A-21
6.19 Contracts and Commitments................................. A-21
6.20 Disclosure................................................ A-22
6.21 Definition of Wyndham's Knowledge......................... A-22
ARTICLE 7. REPRESENTATIONS AND WARRANTIES OF PATRIOT................. A-22
7.1 Existence; Good Standing; Authority; Compliance With Law.. A-22
7.2 Authorization, Validity and Effect of Agreements.......... A-23
7.3 Capitalization............................................ A-23
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.4 Subsidiaries............................................. A-24
7.5 No Violation............................................. A-24
7.6 SEC Documents............................................ A-25
7.7 Litigation............................................... A-25
7.8 Absence of Certain Changes............................... A-25
7.9 Taxes.................................................... A-25
7.10 Books and Records........................................ A-26
7.11 Properties............................................... A-27
7.12 Environmental Matters.................................... A-28
7.13 Employee Benefit Plans................................... A-28
7.14 Labor Matters............................................ A-29
7.15 No Brokers............................................... A-29
7.16 Opinion of Financial Advisor............................. A-29
7.17 Wyndham Stock Ownership.................................. A-29
7.18 Related Party Transactions............................... A-29
7.19 Contracts and Commitments................................ A-30
7.20 Patriot Stock............................................ A-30
7.21 Disclosure............................................... A-30
7.22 Definition of Patriot's Knowledge........................ A-30
ARTICLE 8. COVENANTS................................................ A-30
8.1 Acquisition Proposals.................................... A-30
8.2 Conduct of Businesses.................................... A-31
8.3 Meetings of Stockholders................................. A-36
8.4 Filings; Other........................................... A-37
8.5 Access to Information.................................... A-38
8.6 Publicity................................................ A-38
8.7 Proxy Statement; Registration Statement.................. A-38
8.8 Listing Application...................................... A-39
8.9 Further Action........................................... A-40
8.10 Affiliates of Wyndham.................................... A-40
8.11 Expenses................................................. A-40
8.12 Indemnification.......................................... A-40
8.13 Reorganization........................................... A-42
8.14 Stop Transfer............................................ A-42
8.15 Brand Conversions........................................ A-42
8.16 Ratification by New Patriot.............................. A-42
8.17 Wyndham's Accumulated and Current Earnings and Profits... A-42
8.18 Private Letter Ruling.................................... A-42
8.19 Employee Benefit Matters................................. A-43
8.20 Stock Purchase Agreement; Purchase and Sale Agreement.... A-43
ARTICLE 9. CONDITIONS............................................... A-43
9.1 Conditions to Each Party's Obligation to Effect the
Merger................................................... A-43
9.2 Conditions to Obligations of Wyndham to Effect the
Merger................................................... A-44
9.3 Conditions to Obligation of Patriot to Effect the
Merger................................................... A-46
ARTICLE 10. TERMINATION; AMENDMENT; WAIVER........................... A-47
10.1 Termination.............................................. A-47
10.2 Effect of Termination.................................... A-49
10.3 Termination Fees and Expenses............................ A-49
10.4 Payment of Termination Amount or Expenses................ A-50
10.5 Extension; Waiver........................................ A-50
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE 11. GENERAL PROVISIONS....................................... A-51
11.1 Nonsurvival of Representations, Warranties and
Agreements............................................... A-51
11.2 Notices.................................................. A-51
11.3 Assignment; Binding Effect; Benefit...................... A-51
11.4 Entire Agreement......................................... A-52
11.5 Amendment................................................ A-52
11.6 Governing Law............................................ A-52
11.7 Counterparts............................................. A-52
11.8 Headings................................................. A-52
11.9 Interpretation........................................... A-52
11.10 Waivers.................................................. A-52
11.11 Incorporation............................................ A-52
11.12 Severability............................................. A-53
11.13 Enforcement of Agreement................................. A-53
11.14 Certain Definitions...................................... A-53
11.15 Schedules................................................ A-53
</TABLE>
(iii)
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), is made and entered
into as of April 14, 1997, between Patriot American Hospitality, Inc., a
Virginia corporation which operates as a real estate investment trust
("Patriot"), and Wyndham Hotel Corporation, a Delaware corporation
("Wyndham").
RECITALS
WHEREAS, Patriot, California Jockey Club ("CJC") and Bay Meadows Operating
Company ("BMOC") have entered into an Agreement and Plan of Merger dated as of
February 24, 1997 (the "Business Combination Agreement"), pursuant to which
Patriot, CJC and BMOC agreed to engage in a business combination among
Patriot, CJC and BMOC, upon the terms and subject to the conditions set forth
in the Business Combination Agreement (the "Business Combination");
WHEREAS, the shares of common stock, par value $.01 per share, of CJC (the
"CJC Stock") and the shares of common stock, par value $.01 per share, of BMOC
(the "BMOC Stock") are paired and transferable and traded only in combination
as a single unit (the "Paired Shares") on the American Stock Exchange;
WHEREAS, upon consummation of the Business Combination, Patriot will have
merged with and into CJC with CJC being the surviving company ("New Patriot"),
New Patriot will change its name to "Patriot American Hospitality, Inc." and
BMOC will change its name to "Patriot American Hospitality Operating Company";
WHEREAS, contemporaneously with the execution of this Agreement, Patriot and
certain entities owned or controlled, directly or indirectly, by the Crow
family and/or various related parties (collectively, the "Crow Family
Entities") have entered into an Omnibus Purchase and Sale Agreement (the
"Purchase and Sale Agreement") pursuant to which certain real estate and
related assets (the "Crow Family Assets") will be sold to Patriot American
Hospitality Partnership, L.P., a Virginia limited partnership ("Patriot OP"),
and an operating partnership to be formed by BMOC in connection with the
Business Combination ("BMOC OP"), for cash, upon the terms and subject to the
conditions set forth in the Purchase and Sale Agreement (the "Purchase and
Sale");
WHEREAS, contemporaneously with the execution of this Agreement, CF
Securities, L.P. (the "Principal Stockholder") and Patriot have entered into a
stock purchase agreement (the "Stock Purchase Agreement") pursuant to which
Patriot shall purchase from the Principal Stockholder, and the Principal
Stockholder shall sell to Patriot and BMOC, all 9,447,745 shares of common
stock, par value $.01 per share, of Wyndham (the "Wyndham Common Stock")
currently owned by the Principal Stockholder (the "Stock Purchase"), and as
consideration therefor, Patriot shall pay cash to the Principal Stockholder,
and/or issue to the Principal Stockholder shares of unpaired Class A preferred
stock, par value $.01 per share, of Patriot (the "Unpaired Patriot Stock") and
issue to the Principal Stockholder Paired Shares of Patriot Stock and BMOC
Stock, upon the terms and subject to the conditions set forth in the Stock
Purchase Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, Patriot and
the Principal Stockholder have entered into a standstill agreement (the
"Standstill Agreement") pursuant to which the Principal Stockholder has agreed
to refrain from taking certain actions and to perform certain other
obligations with respect to Patriot and BMOC and the securities of Patriot and
BMOC to be issued to the Principal Stockholder pursuant to the Stock Purchase
Agreement, upon the terms and subject to the conditions set forth in the
Standstill Agreement;
WHEREAS, as a condition to the willingness of Patriot to enter into this
Agreement, (i) certain management stockholders of Wyndham (the "Management
Stockholders") and the Principal Stockholder have entered into a
A-1
<PAGE>
Proxy Agreement, dated as of the date hereof, with Patriot (the "Proxy
Agreement"), pursuant to which each of the Management Stockholders and the
Principal Stockholder has, among other things, granted to Patriot an
irrevocable proxy to vote his, her or its shares of Wyndham Common Stock in
favor of the approval of the Merger (as hereinafter defined), this Agreement
and the other transactions contemplated hereby and the approval of any other
matter relating to consummation of the transactions contemplated by this
Agreement, upon the terms and subject to the conditions set forth in the Proxy
Agreement, and (ii) the Management Stockholders, the Principal Stockholder and
certain members of Patriot's management have entered into Voting Agreements,
dated as of the date hereof, with Patriot (collectively, the "Voting
Agreements"), pursuant to which such stockholders have agreed to certain
matters with respect to the voting securities of Patriot and BMOC held by such
stockholders after the Merger;
WHEREAS, contemporaneously with the execution of this Agreement, certain
officers of Patriot and certain officers of Wyndham have entered into
employment agreements with Patriot (the "Employment Agreements"), upon the
terms and subject to the conditions set forth therein, including, without
limitation, conditions that the Employment Agreements shall not become
effective unless the Merger is consummated;
WHEREAS, the Board of Directors of Patriot and the Board of Directors of
Wyndham each have determined that a business combination between Patriot and
Wyndham with related agreements with BMOC is in the best interests of their
respective companies and stockholders and presents an opportunity for their
respective companies to achieve long-term strategic and financial benefits,
and accordingly have agreed to effect the transactions provided for herein
upon the terms and subject to the conditions set forth herein;
WHEREAS, immediately following consummation of the transactions contemplated
by this Agreement, the shares of BMOC Stock and the shares of common stock,
par value $.01 per share, of New Patriot will be paired and transferable and
traded only in combination as a single unit on the New York Stock Exchange;
WHEREAS, it is intended that the Stock Purchase by Patriot and the Merger
provided for herein be treated as an integrated transaction that, for federal
income tax purposes, qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and pursuant to which the consideration received by all of the stockholders of
Wyndham shall be tax-free to such stockholders to the extent such
consideration consists of Patriot Unpaired Stock and, to the extent consisting
of Patriot Stock, Paired Shares of Patriot Stock and BMOC Stock, and for
financial accounting purposes shall be accounted for as a "purchase";
WHEREAS, Patriot and Wyndham have each received a fairness opinion from
their respective financial advisors, and the special committee of the Board of
Directors of Wyndham (the "Wyndham Special Committee") has received a fairness
opinion from its financial advisor, relating to the transactions contemplated
hereby as more fully described herein; and
WHEREAS, Patriot and Wyndham desire to make certain representations,
warranties and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1.
The Merger
1.1 The Merger. Subject to the terms and conditions of this Agreement, at
the Effective Time (as hereinafter defined), Wyndham shall be merged with and
into New Patriot in accordance with this Agreement, and the separate corporate
existence of Wyndham shall thereupon cease (the "Merger"). New Patriot shall
be the surviving corporation in the Merger (sometimes hereinafter referred to
as the "Surviving Corporation"). The Merger shall have the effects specified
in Section 259 of the Delaware General Corporation Law (the "DGCL").
A-2
<PAGE>
As used in this Agreement, (i) any reference to "Patriot" means Patriot prior
to consummation of the Business Combination and New Patriot following
consummation of the Business Combination, (ii) any reference to a "Patriot
Subsidiary" means a Subsidiary of Patriot prior to consummation of the
Business Combination and a Subsidiary of New Patriot following consummation of
the Business Combination, and (iii) any reference to "Patriot Stock" means the
shares of common stock, no par value, of Patriot prior to consummation of the
Business Combination and the shares of common stock, par value $.01 per share,
of New Patriot following consummation of the Business Combination.
1.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the offices of
Goodwin, Procter & Hoar llp, Exchange Place, Boston, Massachusetts, at 10:00
a.m., local time, on the date which is the later of (a) October 1, 1997 or (b)
the first business day immediately following the day on which the last of the
conditions set forth in Article 9 shall be fulfilled or waived in accordance
herewith, or at such other time, date or place as the parties hereto may
agree; provided, however, that, subject to the provisions of Section 10.1(c),
Patriot may, by notice in writing to Wyndham not less than ten (10) days prior
to the then scheduled date of the meeting of Wyndham stockholders pursuant to
Section 8.3, extend the date which is the later of the dates specified in the
foregoing clauses (a) and (b) if Patriot determines in its reasonable
judgment, after consultation with Wyndham, that such action is necessary to
allow Patriot to receive the Ruling (as hereinafter defined) prior to Closing.
Unless the parties shall otherwise agree, the parties shall use their
reasonable best efforts to cause the Closing to occur as soon as possible
after the meetings of stockholders held pursuant to Section 8.3, and, if
Patriot shall provide the foregoing notice to Wyndham extending the date which
is the later of the dates specified in the foregoing clauses (a) and (b), then
Wyndham may adjourn its stockholders' meeting so as to cause it to occur as
close as reasonably possible to the anticipated Closing Date. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all of the conditions to the Merger set forth in
Article 9 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 10, the
parties hereto shall promptly cause a Certificate of Merger satisfying the
requirements of the DGCL (the "Certificate of Merger") to be properly
executed, verified and delivered for filing in accordance with the DGCL on the
Closing Date. The Merger shall become effective upon the acceptance for record
of the Certificate of Merger by the Secretary of State of Delaware in
accordance with the DGCL or at such later time which the parties hereto shall
have agreed upon and designated in such filing in accordance with applicable
law as the effective time of the Merger (the "Effective Time").
1.4 Ancillary Agreements. At the Closing and prior to the Effective Time,
(i) Patriot and the Principal Stockholder shall consummate the Stock Purchase,
subject to the terms of the Stock Purchase Agreement, (ii) Wyndham and BMOC
shall consummate the BMOC Stock Issuance (as hereinafter defined), subject to
the terms of the Wyndham/BMOC Subscription Agreement (as hereinafter defined),
and (iii) Wyndham and BMOC OP shall consummate the Asset Sale (as hereinafter
defined) in the event that the Ruling is not obtained prior to the Effective
Time. At the Closing, (i) the Crow Family Entities shall consummate the
Purchase and Sale of the Crow Family Assets to Patriot OP and BMOC OP, subject
to the terms of the Purchase and Sale Agreement, and (ii) Patriot, BMOC, the
Principal Stockholder, certain of the Management Stockholders and certain
other stockholders of Wyndham shall enter into a registration rights agreement
in substantially the form of Exhibit A attached hereto (the "Registration
Rights Agreement"). Following consummation of the Business Combination and
subject to the terms and conditions of this Agreement, (x) Patriot and Wyndham
shall enter into an agreement substantially in the form set forth on Exhibit B
attached hereto pursuant to which, among other things, Patriot shall make
certain representations and warranties to Wyndham in connection with the
transactions contemplated by this Agreement (the "Patriot Ratification
Agreement"), and (y) BMOC and Wyndham shall enter into an agreement
substantially in the form set forth on Exhibit C attached hereto pursuant to
which, among other things, BMOC will make certain representations and
warranties to Wyndham in connection with the transactions contemplated by this
Agreement (the "BMOC Ratification Agreement"). At or prior to the Closing,
Patriot and BMOC shall enter into a Master Leasehold Agreement having such
terms as to which Patriot and BMOC shall
A-3
<PAGE>
hereafter agree, in addition to the terms set forth on Exhibit D attached
hereto (the "Master Leasehold Agreement"), provided that Wyndham shall first
be given a reasonable opportunity to review and comment upon the terms of such
agreement. No later than eleven (11) business days prior to the Closing,
Patriot and BMOC shall enter into a Cooperation Agreement in substantially the
form of Exhibit E attached hereto (the "Cooperation Agreement"). The Stock
Purchase Agreement, Purchase and Sale Agreement, Cooperation Agreement,
Standstill Agreement, Proxy Agreement, Registration Rights Agreement, Patriot
Ratification Agreement, BMOC Ratification Agreement, Voting Agreements,
Employment Agreements, Wyndham/BMOC Subscription Agreement, the Option
Agreement of even date herewith between Patriot and the grantors named therein
(the "ISIS Owners") pursuant to which the ISIS Owners have granted to Patriot
an option to acquire the equity interests owned by the ISIS Owners in ISIS
2000 L.P., and the Option Agreement of even date herewith between Patriot and
the grantors named therein (the "MIS Owners") pursuant to which the MIS Owners
have granted to Patriot an option to acquire the equity interests owned by the
MIS Owners in Kinetic Group Limited Partnership (formerly known as CW
Synergistech, LP), are referred to collectively herein as the "Ancillary
Agreements."
ARTICLE 2.
The Wyndham/BMOC Subscription
2.1 Wyndham/BMOC Subscription Agreement. Immediately prior to the Closing,
Wyndham and BMOC shall enter into a contract in substantially the form of
Exhibit F attached hereto (the "Wyndham/BMOC Subscription Agreement") pursuant
to which Wyndham will agree to pay for, and BMOC will issue directly to the
stockholders of Wyndham as part of the consideration to be paid to such
stockholders in the Merger (the "BMOC Stock Issuance"), a number of shares
(the "Subscribed Shares") of BMOC Stock equal to the number of shares of
Patriot Stock to be issued to stockholders of Wyndham pursuant to the Merger.
2.2 Subscribed Shares. The parties hereto acknowledge and agree that the
Subscribed Shares will be issued in accordance with Section 5.2(a) hereof to
the stockholders of Wyndham in connection with the Merger and will be paired
with the Patriot Stock issued in the Merger in accordance with that certain
Pairing Agreement, dated as of February 17, 1983 and amended from time to time
thereafter, by and between CJC and BMOC (the "Pairing Agreement"), and Wyndham
shall not at any time become a stockholder of BMOC. The provisions of this
Article 2, the BMOC Stock Issuance and the Wyndham/BMOC Subscription Agreement
are intended to comply and shall be interpreted in a manner consistent with
Sections 2(a) and 2(b) of the Pairing Agreement.
ARTICLE 3.
Certificate of Incorporation and Bylaws of the Surviving Corporation
3.1 Charter. The Amended and Restated Certificate of Incorporation of
Patriot in effect immediately prior to the Effective Time (the "Patriot
Certificate") shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law, and shall
contain terms required by and consistent with this Agreement, the Stock
Purchase Agreement and the Cooperation Agreement and terms not otherwise
prohibited from being contained in such certificate by any of such agreements
(the "Surviving Corporation Certificate").
3.2 Bylaws. The Amended and Restated Bylaws of Patriot in effect immediately
prior to the Effective Time (the "Patriot Bylaws") shall be the Bylaws of the
Surviving Corporation, until duly amended in accordance with applicable law,
and shall contain terms required by and consistent with this Agreement, the
Stock Purchase Agreement and the Cooperation Agreement and terms not otherwise
prohibited from being contained in such bylaws by any of such agreements (the
"Surviving Corporation Bylaws").
A-4
<PAGE>
ARTICLE 4.
Directors and Officers of the Surviving Corporation and BMOC
4.1 Directors of the Surviving Corporation.
(a) At the Effective Time, the number of directors of the Surviving
Corporation shall be fixed at eleven. At the Effective Time, eight of the
directors of the Surviving Corporation shall be Paul Nussbaum, William W.
Evans III, Arch Jacobson, John Daniels and John Deterding, and three
individuals designated by Patriot prior to the Effective Time who shall be
reasonably acceptable to Wyndham (the foregoing eight individuals being
referred to herein collectively as the "Patriot Designees"); provided,
however, that for purposes of the foregoing, Wyndham acknowledges that the
individuals listed on Section 4.1 of the Patriot Disclosure Letter (as
hereinafter defined) are reasonably acceptable Patriot Designees. At the
Effective Time, two of the directors of the Surviving Corporation shall be
James Carreker and an individual designated by Wyndham prior to the Effective
Time who shall be reasonably acceptable to Patriot (the foregoing two
individuals being referred to herein collectively as the "Wyndham Designees").
The remaining director shall be designated by the Crow Family Entities prior
to the Effective Time and shall be reasonably acceptable to Patriot (the
"Family Designee"); provided, however, that for purposes of the foregoing,
Patriot acknowledges that Harlan Crow is a reasonably acceptable Family
Designee and that the term of the Family Designee on the Board of Directors of
Patriot shall commence on the third day immediately following the Effective
Time (the "Family-Designee Date").
(b) In the event that immediately following consummation of the Business
Combination the Board of Directors of Patriot is divided into classes, then,
at the Effective Time, the directors of each of the classes of the Board of
Directors of the Surviving Corporation shall be as follows (subject to the
provisions of this Section 4.1):
<TABLE>
<CAPTION>
CLASS DESIGNEE TERM EXPIRES
----- -------- ------------
<S> <C> <C>
I Paul Nussbaum 1998
I Family Designee 1998
I John Deterding 1998
I Patriot Designee 1998
II John Daniels 1999
II Patriot Designee 1999
II Patriot Designee 1999
II Wyndham Designee 1999
III James Carreker 2000
III Arch Jacobson 2000
III William W. Evans III 2000
</TABLE>
(c) Patriot and Wyndham agree that in the event that any Patriot Designee is
unable or otherwise fails to serve, for any reason, as a director of Patriot
at the Effective Time, Patriot shall have the right to designate another
individual to serve as a director of Patriot at the Effective Time in place of
such Patriot Designee (or if a vacancy shall be deemed to have occurred in
respect thereof, Patriot shall have the right to fill such vacancy,
notwithstanding any other provision to the contrary contained herein);
provided, however, that such individual shall be reasonably satisfactory to
Wyndham. Patriot and Wyndham shall each cause such designee of Patriot to be
elected to the Board of Directors of Patriot at the Effective Time in place of
such Patriot Designee.
(d) Patriot and Wyndham agree that in the event that any Wyndham Designee is
unable or otherwise fails to serve, for any reason, as a director of Patriot
at the Effective Time, Wyndham shall have the right to designate another
individual to serve as a director of Patriot at the Effective Time in place of
such Wyndham Designee (or if a vacancy shall be deemed to have occurred in
respect thereof, Wyndham shall have the right to fill such vacancy,
notwithstanding any other provision to the contrary contained herein);
provided, however, that such individual shall be reasonably satisfactory to
Patriot. Patriot and Wyndham shall each cause such designee of Wyndham to be
elected to the Board of Directors of Patriot at the Effective Time in place of
such Wyndham Designee.
A-5
<PAGE>
(e) Patriot and Wyndham agree that in the event that the Family Designee is
unable or otherwise fails to serve, for any reason, as a director of Patriot
on the Family-Designee Date, the Crow Family Entities shall have the right to
designate another individual to serve as a director of Patriot on the Family-
Designee Date in place of such Family Designee (or if a vacancy shall be
deemed to have occurred in respect thereof, the Crow Family Entities shall
have the right to fill such vacancy, notwithstanding any other provision to
the contrary contained herein); provided, however, that such individual shall
be reasonably satisfactory to Patriot. Patriot and Wyndham shall each cause
such designee of the Crow Family Entities to be elected to the Board of
Directors of Patriot on the Family-Designee Date in place of such Family
Designee.
(f) Notwithstanding any of the foregoing provisions of this Section 4.1 or
any other provision of this Agreement to the contrary, the parties agree that
in no event shall a majority of the directors of the Surviving Corporation
immediately following the Effective Time be executive officers or directors of
BMOC.
4.2 Officers of the Surviving Corporation. At the Effective Time, the
officers of the Surviving Corporation shall include, but not be limited to,
Paul Nussbaum, who shall be Chairman of the Board of Directors and Chief
Executive Officer, William Evans, who shall be President, and Anne Raymond,
who shall be Chief Financial Officer and an Executive Vice President.
4.3 Directors of BMOC.
(a) At or prior to the Effective Time, the number of directors of BMOC shall
be fixed at eleven. At the Effective Time, seven of the directors of BMOC
shall be Paul Nussbaum, Leonard Boxer, Arch Jacobson and Rusty Lyons, and
three individuals designated by Patriot prior to the Effective Time who shall
be reasonably acceptable to Wyndham (the foregoing seven individuals being
referred to herein collectively as the "Patriot-BMOC Designees"); provided,
however, that for purposes of the foregoing, Wyndham acknowledges that the
individuals listed on Section 4.3 of the Patriot Disclosure Letter are
reasonably acceptable Patriot-BMOC Designees. At the Effective Time, three of
the directors of BMOC shall be James Carreker and two individuals designated
by Wyndham prior to the Effective Time who shall be reasonably acceptable to
Patriot (the foregoing three individuals being referred to herein collectively
as the "Wyndham-BMOC Designees"); provided, however, that for purposes of the
foregoing, Patriot acknowledges that the individual listed on Section 4.3 of
the Wyndham Disclosure Letter (as hereinafter defined) is a reasonably
acceptable Wyndham-BMOC Designee. The remaining director shall be designated
by the Crow Family Entities prior to the Effective Time and shall be
reasonably acceptable to Patriot (the "Family-BMOC Designee"); provided,
however, that for purposes of the foregoing, Patriot acknowledges that Harlan
Crow is a reasonably acceptable Family-BMOC Designee and that the term of the
Family-BMOC Designee on the Board of Directors of BMOC shall commence on the
third day immediately following the Effective Time (the "Family-BMOC-Designee
Date").
(b) In the event that immediately following consummation of the Business
Combination the Board of Directors of BMOC is divided into classes, then, at
the Effective Time, the directors of each class of the Board of Directors of
BMOC shall be as follows (subject to the provisions of this Section 4.3):
<TABLE>
<CAPTION>
CLASS DESIGNEE TERM EXPIRES
----- -------- ------------
<S> <C> <C>
I James Carreker 1998
I Rusty Lyons 1998
I Wyndham-BMOC Designee 1998
I Patriot-BMOC Designee 1998
II Arch Jacobson 1999
II Leonard Boxer 1999
II Family-BMOC Designee 1999
II Patriot-BMOC Designee 1999
III Paul Nussbaum 2000
III Patriot-BMOC Designee 2000
III Wyndham-BMOC Designee 2000
</TABLE>
A-6
<PAGE>
(c) Patriot, Wyndham and BMOC agree that in the event that any Patriot-BMOC
Designee is unable or otherwise fails to serve, for any reason, as a director
of BMOC at the Effective Time, Patriot shall have the right to designate
another individual to serve as a director of BMOC at the Effective Time in
place of such Patriot-BMOC Designee (or if a vacancy shall be deemed to have
occurred in respect thereof, Patriot shall have the right to fill such
vacancy, notwithstanding any other provision to the contrary contained
herein); provided, however, that such individual shall be reasonably
satisfactory to Wyndham. BMOC and Wyndham shall each cause such designee of
Patriot to be elected to the Board of Directors of BMOC at the Effective Time
in place of such Patriot-BMOC Designee.
(d) Patriot, Wyndham and BMOC agree that in the event that any Wyndham-BMOC
Designee is unable or otherwise fails to serve, for any reason, as a director
of BMOC at the Effective Time, Wyndham shall have the right to designate
another individual to serve as a director of BMOC at the Effective Time in
place of such Wyndham-BMOC Designee (or if a vacancy shall be deemed to have
occurred in respect thereof, Wyndham shall have the right to fill such
vacancy, notwithstanding any other provision to the contrary contained
herein); provided, however, that such individual shall be reasonably
satisfactory to Patriot. BMOC and Wyndham shall each cause such designee of
Wyndham to be elected to the Board of Directors of BMOC at the Effective Time
in place of such Wyndham-BMOC Designee.
(e) Patriot, Wyndham and BMOC agree that in the event that the Family-BMOC
Designee is unable or otherwise fails to serve, for any reason, as a director
of BMOC on the Family-BMOC-Designee Date, the Crow Family Entities shall have
the right to designate another individual to serve as a director of BMOC on
the Family-BMOC-Designee Date in place of such Family-BMOC Designee (or if a
vacancy shall be deemed to have occurred in respect thereof, the Crow Family
Entities shall have the right to fill such vacancy, notwithstanding any other
provision to the contrary contained herein); provided, however, that such
individual shall be reasonably satisfactory to Patriot. BMOC and Wyndham shall
each cause such designee of the Crow Family Entities to be elected to the
Board of Directors of BMOC on the Family-BMOC-Designee Date in place of such
Family-BMOC Designee.
(f) Notwithstanding any of the foregoing provisions of this Section 4.3 or
any other provision of this Agreement to the contrary, Patriot, Wyndham and
BMOC agree that in no event shall a majority of the directors of BMOC
immediately following the Effective Time be executive officers or directors of
the Surviving Corporation.
4.4 Officers of BMOC. At the Effective Time, the officers of BMOC shall
include, but not be limited to, James Carreker, who shall be Chairman of the
Board of Directors and Chief Executive Officer, Rex Stewart, who shall be
Chief Financial Officer and an Executive Vice President, and Thomas Lattin,
who shall be an Executive Vice President.
4.5 Change of Name. At the Effective Time, (i) BMOC and Patriot or a
Subsidiary of Patriot shall enter into a license agreement pursuant to which
Patriot or such Subsidiary of Patriot shall license to BMOC use of the
"Wyndham" brand, and (ii) the Certificate of Incorporation of BMOC shall be
amended (the "BMOC Charter Amendment") to change the name of BMOC to "Wyndham
International" and shall contain terms required by and consistent with this
Agreement, the Stock Purchase Agreement and the Cooperation Agreement and
terms not otherwise prohibited from being contained in such certificate by any
of such agreements.
ARTICLE 5.
Exchange of Stock
5.1 Outstanding Paired Shares of Patriot Stock and BMOC Stock.
(a) At and after the Effective Time, each Paired Share of Patriot Stock and
BMOC Stock outstanding immediately prior to the Effective Time shall remain
outstanding and shall continue to represent one Paired Share of Patriot Stock
and BMOC Stock.
A-7
<PAGE>
(b) At and after the Effective Time, each option exercisable for a Paired
Share of Patriot Stock and BMOC Stock outstanding immediately prior to the
Effective Time shall remain outstanding and shall continue to represent an
option to purchase a Paired Share of Patriot Stock and BMOC Stock.
5.1 Conversion of Wyndham Common Stock.
(a) Except as otherwise provided in Section 5.3(a) with respect to holders
of Wyndham Common Stock who make a Cash Election (as defined therein) and
except as otherwise provided herein, at the Effective Time, each share of
Wyndham Common Stock issued and outstanding immediately prior to the Effective
Time (other than those shares of Wyndham Common Stock to be canceled pursuant
to Section 5.2(c)) shall, by virtue of the Merger and without any action on
the part of Wyndham, Patriot, BMOC or the holders of any of the securities of
any of these corporations, be converted into the right to receive 0.712 Paired
Shares of Patriot Stock and BMOC Stock; provided, however, that in the event
that the Average Closing Price (as hereinafter defined) of a Paired Share of
Patriot Stock and BMOC Stock is less than $42.13 per share (subject to
adjustment as provided below) but greater than or equal to $40.21 per share
(subject to adjustment as provided below), then each share of Wyndham Common
Stock issued and outstanding immediately prior to the Effective Time (other
than those shares of Wyndham Common Stock to be canceled pursuant to Section
5.2(c)) shall be converted into the right to receive a number of Paired Shares
of Patriot Stock and BMOC Stock equal to $30.00 divided by the Average Closing
Price; provided, further, that in the event that the Average Closing Price of
a Paired Share of Patriot Stock and BMOC Stock is less than $40.21 per share
(subject to adjustment as provided below), (A) each share of Wyndham Common
Stock issued and outstanding immediately prior to the Effective Time (other
than those shares of Wyndham Common Stock to be canceled pursuant to Section
5.2(c)) shall be converted into the right to receive a number of Paired Shares
of Patriot Stock and BMOC Stock equal to 0.746 (the applicable percentage of a
share of Patriot Stock to be issued upon such conversion herein being the
"Exchange Ratio"), and (B) Wyndham shall have the right, waivable by it, to
terminate this Agreement pursuant to Section 10.1(l) without any liability on
its part by giving written notice of its election to do so to Patriot prior to
11:59 p.m., Dallas, Texas time on the first business day after the expiration
of the Measurement Period (as hereinafter defined). The Paired Shares of
Patriot Stock and BMOC Stock to be issued to holders of Wyndham Common Stock
in the Merger are referred to herein as the "Stock Consideration." For
purposes of this Agreement, the term "Average Closing Price" shall mean the
average per share closing price of a Paired Share of a Patriot Stock and BMOC
Stock as reported on the NYSE over the twenty (20) trading days immediately
preceding the fifth business day prior to the date on which the meeting of
Wyndham's stockholders is to be convened pursuant to Section 8.3 hereof such
twenty (20) trading day period being referred to herein as the "Measurement
Period"). Notwithstanding the foregoing, if between the date of this Agreement
and the Effective Time the outstanding Paired Shares of CJC Stock and BMOC
Stock, the outstanding Paired Shares of Patriot Stock and BMOC Stock or the
outstanding shares of Wyndham Common Stock shall have been changed, other than
pursuant to this Agreement or the Business Combination Agreement, into a
different number of shares or a different class or series, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares (or if between the date of this Agreement
and the effective date of the Business Combination the outstanding shares of
Patriot Stock shall have been so changed and no adjustment shall have been
made on account thereof pursuant to Section 5.2(a) of the Business Combination
Agreement), the Exchange Ratio and the per share reference prices of Paired
Shares referred to above shall be correspondingly adjusted to reflect such
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares; provided that none of Patriot, BMOC or
Wyndham shall effect any such change during or, until the Effective Time,
following the Measurement Period.
(b) As a result of the Merger and without any action on the part of the
holders thereof, all shares of Wyndham Common Stock shall cease to be
outstanding, shall be canceled and retired and shall cease to exist and each
holder of a certificate (a "Certificate" and, collectively, the
"Certificates") representing any shares of Wyndham Common Stock (other than
those shares of Wyndham Common Stock to be canceled pursuant to Section
5.2(c)) shall thereafter cease to have any rights with respect to such shares
of Wyndham Common Stock, except the right to receive, without interest, Stock
Consideration in accordance with Section 5.2(a) and/or cash
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consideration in accordance with Section 5.3(a), dividend(s) payable in
accordance with Section 5.4(c) and cash in lieu of Excess Paired Shares (if
any) and fractional Paired Shares of Patriot Stock and BMOC Stock in
accordance with Sections 5.2(b) and 5.4(e), respectively, upon the surrender
of such Certificate.
(c) Each share of Wyndham Common Stock issued and held in Wyndham's treasury
and each share of Wyndham Common Stock held by Patriot, BMOC or any of the
Patriot Subsidiaries or BMOC Subsidiaries immediately prior to the Effective
Time, if any, by virtue of the Merger shall cease to be outstanding, shall be
canceled and retired and shall cease to exist and no payment of any
consideration shall be made with respect thereto.
(d) At the Effective Time, Wyndham's obligations with respect to each stock
option (collectively, the "Existing Wyndham Options") set forth in Section 6.3
of the Wyndham Disclosure Letter (as defined in Article 6 hereof) shall be
assumed by Patriot (the "Assumed Options"), subject to the provisions
described in this Section. The Assumed Options shall not terminate in
connection with the Merger and shall continue to have, and be subject to, the
same terms and conditions as set forth in the stock option plans and
agreements (as in effect immediately prior to the Effective Time) pursuant to
which the Existing Wyndham Options were issued, provided that (i) all
references to Wyndham shall be deemed to be references to Patriot or BMOC, as
the case may be, and all references to Wyndham Common Stock shall be deemed to
be references to Paired Shares of Patriot Stock and BMOC Stock, (ii) each
option shall fully vest and become exercisable in accordance with its terms,
and (iii) each option shall be exercisable for that number of whole Paired
Shares of Patriot Stock and BMOC Stock equal to the product of the number of
shares of Wyndham Common Stock covered by such option immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounded to the nearest
whole number of Paired Shares of Patriot Stock and BMOC Stock and (v) the
exercise price per share of Paired Patriot Stock and BMOC Stock under such
option shall be equal to the exercise price per share of Wyndham Common Stock
under the Existing Wyndham Option divided by the Exchange Ratio and rounded to
the nearest cent. Patriot shall (A) reserve for issuance the number of shares
of Patriot Stock that will become issuable upon the exercise of such Assumed
Options pursuant to this Section 5.2(e) and (B) promptly after the Effective
Time issue to each holder of an outstanding Existing Wyndham Option a document
evidencing the assumption by Patriot of Wyndham's obligations with respect
thereto under this Section. BMOC shall (A) reserve for issuance the number of
shares of BMOC Stock that will become issuable upon the exercise of such
Assumed Options pursuant to this Section 5.2(d) and (B) promptly after the
Effective Time issue to each holder of an outstanding Existing Wyndham Option
a document evidencing the assumption by BMOC of Wyndham's obligations with
respect thereto under this Section. Patriot, BMOC and Wyndham shall consider
in good faith whether any of the Assumed Options will provide that Patriot or
BMOC, as the case may be, shall have the discretion to settle any option
exercise with a cash amount equal to the difference between the option
exercise price and the fair market value of the Paired Shares of Patriot Stock
and BMOC Stock, less any applicable tax withholding.
5.3 Cash Election.
(a) (i) Notwithstanding the provisions of Section 5.2(a), each person who,
on the Election Date (as hereinafter defined), is a record holder of shares of
Wyndham Common Stock (other than those shares of Wyndham Common Stock to be
canceled pursuant to Section 5.2(c)) will be entitled, with respect to that
number of such holder's shares of Wyndham Common Stock specified in such
holder's Form of Election (as defined in Section 5.3(b)) but not in excess of
the total number of shares of Wyndham Common Stock held by such holder (each
such share of Wyndham Common Stock being referred to herein as a "Cash
Electing Share," and the aggregate number of shares of Wyndham Common Stock
with respect to which such holder has made a Cash Election being referred to
herein as such holder's "Cash Electing Shares"), to make an election (a "Cash
Election") on or prior to such Election Date to receive from Patriot following
the Effective Time an amount in cash and Stock Consideration determined as
follows:
(A) If the Aggregate Cash Electing Shares (as hereinafter defined) is
less than or equal to the Cash Conversion Number (as hereinafter defined),
then such holder shall be entitled to receive for each such Cash Electing
Share an amount of cash equal to the Per Share Cash Amount (as hereinafter
defined); or
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(B) If the Aggregate Cash Electing Shares is greater than the Cash
Conversion Number, then such holder shall be entitled to receive (x) with
respect to that number of such holder's Cash Electing Shares equal to such
holder's total Cash Electing Shares multiplied by the Cash Proration Factor
(as hereinafter defined), with the result rounded to the next lower whole
share (the "Prorated Cash Electing Shares"), an amount of cash equal to the
product of such holder's Prorated Cash Electing Shares and the Per Share
Cash Amount, and (y) Stock Consideration in accordance with Section 5.2
with respect to that number of such holder's Cash Electing Shares equal to
the difference between such holder's total Cash Electing Shares and such
holder's Prorated Cash Electing Shares.
(ii) For purposes of this Agreement:
"Aggregate Cash Electing Shares" shall mean the total number of Cash
Electing Shares for all holders of Wyndham Common Stock.
"Cash Election Price" shall mean the product of the Exchange Ratio and
the Fair Market Value.
"Cash Conversion Number" shall mean $100,000,000 divided by the Cash
Election Price.
"Cash Proration Factor" shall mean the Cash Conversion Number divided by
the Aggregate Cash Electing Shares, with the result rounded to four decimal
points.
"Fair Market Value" shall mean the average closing price of the Paired
Shares of Patriot Stock and BMOC Stock on the NYSE on the five (5) trading
days immediately preceding the Closing Date.
"Per Share Cash Amount" shall mean the product of the Fair Market Value
multiplied by the Exchange Ratio.
For purposes of the foregoing definitions in this clause (ii), the number of
shares of Wyndham Common Stock held of record by the Principal Stockholder and
its permitted assignees, if any, as to which the Principal Stockholder and its
permitted assignees have made an election to receive cash pursuant to Section
1.1(b) of the Stock Purchase Agreement shall be treated as "Cash Electing
Shares," but all consideration to be paid for such shares shall be paid or
delivered by Patriot and BMOC pursuant to the Stock Purchase Agreement and not
pursuant to this Agreement.
(iii) The aggregate consideration to be received by holders of Wyndham
Common Stock pursuant to Section 5.2(a) and this Section 5.3(a), any dividends
and cash in lieu of Excess Paired Shares, if any, to be received by holders of
Wyndham Common Stock in accordance with Section 5.2(b), and fractional Paired
Shares, if any, to be received by the holders of Wyndham Common Stock in
accordance with Section 5.4, are referred to herein collectively as the
"Merger Consideration."
(b) Patriot shall prepare a form of election, which form shall be subject to
the reasonable approval of Wyndham (the "Form of Election"), and Wyndham shall
mail such Form of Election with the Proxy Statement (as hereinafter defined)
to the record holders of Wyndham Common Stock as of the record date for the
Wyndham stockholders' meeting which will be held in accordance with the
provisions of Section 8.3 hereof, which Form of Election shall be used by each
record holder of shares of Wyndham Common Stock who wishes to make a Cash
Election with respect to any or all shares of Wyndham Common Stock held by
such holder. Patriot will use its best efforts to make the Form of Election
and the Proxy Statement available to all persons who become holders of Wyndham
Common Stock during the period between such record date and the Election Date
referred to below. Any such holder's Cash Election shall have been properly
made only if the Exchange Agent (as hereinafter defined) shall have received
at its designated office, by 5:00 p.m., New York City time, on the Election
Date, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Wyndham Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of Patriot (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which
is a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within three NYSE
trading days after the date of execution of such guarantee of delivery). As
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used herein, the "Election Date" means two (2) business days prior to the
Closing Date or such other date, agreed upon by Patriot and Wyndham, which
date shall be announced by Patriot, in a news release delivered to Dow Jones
News Service, as the last day on which Forms of Election will be accepted,
which date shall be at least five business days following the date of such
news release.
(c) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent prior
to 5:00 p.m., New York City time, on the Election Date. In addition, all Forms
of Election shall automatically be revoked if the Exchange Agent is notified
in writing by Patriot and Wyndham that the Merger has been abandoned. If a
Form of Election is revoked, the certificate or certificates (or guarantees of
delivery, as appropriate) for the shares of Wyndham Common Stock to which such
Form of Election relates shall be promptly returned to the stockholder
submitting the same to the Exchange Agent.
(d) The determination of the Exchange Agent shall be binding as to whether
or not a Cash Election has been properly made or revoked pursuant to this
Section 5.3 with respect to shares of Wyndham Common Stock. If the Exchange
Agent determines that any Cash Election was not properly made with respect to
shares of Wyndham Common Stock, such shares shall be treated by the Exchange
Agent as shares that were not Cash Electing Shares at the Effective Time, and
such shares shall be exchanged in the Merger pursuant to Section 5.2(a). The
Exchange Agent may, with the mutual agreement of Patriot and Wyndham, make
such rules as are consistent with this Section 5.3 for the implementation of
the election provided for herein as shall be necessary or desirable fully to
effect such election.
5.4 Exchange of Certificates Representing Wyndham Common Stock.
(a) As of the Effective Time, (i) Patriot shall deposit, or shall cause to
be deposited, with an exchange agent selected by Patriot on or prior to the
Effective Time (the "Exchange Agent"), for the benefit of the holders of
shares of Wyndham Common Stock, for exchange in accordance with this Article
5, a certificate representing the shares of Patriot Stock to be issued
pursuant to Section 5.2(a), cash in an aggregate amount sufficient to pay the
aggregate cash consideration payable to holders of Wyndham Common Stock who
have made a Cash Election pursuant to Section 5.3(a), if any, the cash in lieu
of Excess Paired Shares, if any, to be paid pursuant to Section 5.2(b) and
fractional Paired Shares to be paid pursuant to this Section 5.4, in exchange
for outstanding shares of Wyndham Common Stock and simultaneously (ii) BMOC
shall deposit, or shall cause to be deposited, with the Exchange Agent, for
the benefit of the holders of shares of Wyndham Common Stock, for distribution
in accordance with Section 5.2(a), a certificate representing the Subscribed
Shares, to be paired with the shares of Patriot Stock described in clause (i)
above (such certificates for shares of Patriot Stock, cash, the certificates
for Subscribed Shares and cash in lieu of Excess Paired Shares and fractional
Paired Shares shall hereinafter be referred to as the "Exchange Fund"). The
provisions of this Section 5.4 are intended to comply and shall be interpreted
in a manner consistent with Sections 2(a) and 2(b) of the Pairing Agreement.
(b) Promptly after the Effective Time, the parties hereto shall cause the
Exchange Agent to mail to each holder of record of a Certificate or
Certificates (i) a letter of transmittal which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Patriot and BMOC may reasonably
specify and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates printed "back-to-back" evidencing
Paired Shares of Patriot Stock and BMOC Stock and cash in lieu of Excess
Paired Shares, if any, and fractional Paired Shares, if any. Upon surrender of
a Certificate for cancellation to the Exchange Agent and delivery of such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto to the Exchange Agent, the holder of such Certificate
shall be entitled to receive in exchange therefor (x) a certificate
representing the number of whole Paired Shares of Patriot Stock and BMOC Stock
to which such holder shall be entitled, and (y) a check representing the
amount payable to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a), if any, plus amount of cash in lieu of
Excess Paired Shares, if any, and fractional Paired Shares, if any, due such
holder plus the amount of any dividends or distributions, if any, pursuant to
Section 5.4(c), after giving effect to any required withholding tax,
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and the Certificate so surrendered shall forthwith be canceled. No interest
will be paid or accrued on the amount payable to holders of Wyndham Common
Stock who have made a Cash Election pursuant to Section 5.3(a), if any, the
cash in lieu of Excess Paired Shares, if any, and fractional Paired Shares, if
any, or on the dividends or distributions, if any, due and payable to holders
of Certificates pursuant to this Section 5.4. In the event of a transfer of
ownership of Wyndham Common Stock which is not registered in the stock
transfer records of Wyndham, a certificate representing the proper number of
Paired Shares of Patriot Stock and BMOC Stock, together with a check for the
cash to be paid to holders of Wyndham Common Stock who have made a Cash
Election pursuant to Section 5.3(a) plus cash to be paid in lieu of Excess
Paired Shares, if any, and fractional Paired Shares, if any, plus, to the
extent applicable, the amount of any dividends or distributions, if any, due
and payable pursuant to Section 5.4(c), may be issued to such a transferee if
the Certificate representing shares of such Wyndham Common Stock is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and to evidence that any applicable stock transfer taxes
have been paid.
(c) Notwithstanding any other provisions of this Agreement, dividends or
other distributions on Paired Shares of Patriot Stock and BMOC Stock with
respect to any shares of Wyndham Common Stock represented by a Certificate
that has not been surrendered for exchange shall be paid only as provided
herein. Any such dividend or distribution amounts with a record date after the
Effective Time and a payment date prior to both the first anniversary of the
Effective Time and the surrender of such Certificate shall be deposited (less
the amount of any withholding taxes which may be required thereon) with the
Exchange Agent on the applicable payment date, to be held by the Exchange
Agent in a non-interest bearing account until the surrender of such
Certificate. Following surrender of any such Certificate, the holder thereof
shall be entitled to receive for the whole Paired Shares of Patriot Stock and
BMOC Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of dividends or other distributions with a record
date after the Effective Time theretofore payable with respect to such whole
Paired Shares and not paid, less the amount of any withholding taxes which may
be required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such Paired Shares, less the amount of any withholding taxes which
may be required thereon.
(d) At and after the Effective Time, there shall be no transfers on the
stock transfer books of Wyndham of the shares of Wyndham Common Stock which
were outstanding immediately prior to the Effective Time and if, after the
Effective Time, Certificates are presented for transfer, they shall be
canceled against delivery of the Merger Consideration as hereinabove provided.
Certificates surrendered for exchange by any person constituting an
"affiliate" of Wyndham for purposes of Rule 145, as such rule may be amended
from time to time ("Rule 145"), of the rules and regulations promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), shall not be
exchanged until Patriot has received an affiliate letter (the "Affiliate
Letter") from such person as provided in Section 8.10.
(e) No fractional Paired Shares of Patriot Stock and BMOC Stock shall be
issued pursuant hereto. In lieu of the issuance of any fractional Paired
Shares pursuant to this Agreement, each holder of Wyndham Common Stock upon
surrender of a Certificate for exchange shall be paid an amount in cash
(without interest), rounded to the nearest cent, determined by multiplying (i)
the Fair Market Value by (ii) the fractional amount of the Paired Shares of
Patriot Stock and BMOC Stock which such holder would otherwise be entitled to
receive under this Article 5.
(f) All cash paid upon the surrender for exchange of certificates
representing shares of Wyndham Common Stock in accordance with the terms of
this Article 5 (including any cash for Excess Paired Shares and fractional
Paired Shares) shall be deemed to have been issued (and paid) in full
satisfaction of all rights pertaining to the shares of Wyndham Common Stock
exchanged for cash theretofore represented by such certificates.
5.5 Return of Exchange Fund. Any portion of the Exchange Fund (including any
cash payable to holders of Wyndham Common Stock who have made a Cash Election
pursuant to Section 5.3(a), any cash for Excess Paired Shares and fractional
Paired Shares, any dividends or distributions of Patriot or BMOC and any
shares of
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Patriot Stock or any Subscribed Shares) that remains unclaimed by the former
stockholders of Wyndham one year after the Effective Time shall be distributed
as follows: any cash payable to holders of Wyndham Common Stock who have made
a Cash Election pursuant to Section 5.3(a), any cash for Excess Paired Shares
and fractional Paired Shares, any dividends or distributions of Patriot and
any shares of Patriot Stock shall be returned to Patriot and any dividends or
distributions of BMOC and any Subscribed Shares shall be returned to BMOC
(provided that Patriot and BMOC shall issue said cash or shares in accordance
with this Article 5 to former stockholders of Wyndham who thereafter surrender
their Certificates), subject to the provisions and effect of applicable
abandoned property, escheat or similar laws. Any former stockholders of
Wyndham who have not theretofore complied with this Article 5 shall thereafter
look only to Patriot for payment of any cash consideration payable as a result
of the Merger or for issuance or payment of that portion of their Paired
Shares representing Patriot Stock and cash in lieu of Excess Paired Shares, if
any, and fractional Paired Shares, if any, and to BMOC for issuance or payment
of that portion of their Paired Shares representing BMOC Stock (plus, in each
case, dividends and distributions to the extent set forth in Section 5.4(c),
if any), as determined pursuant to this Agreement, without any interest
thereon. None of Patriot, BMOC, Wyndham, the Exchange Agent or any other
person shall be liable to any former holder of shares of Wyndham Common Stock
for any shares of stock or cash properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
5.6 Lost or Stolen Certificates. In the event any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the person claiming such Certificate to be lost, stolen or destroyed and,
if required by Patriot and BMOC, the posting by such person of a bond in such
reasonable amount as Patriot and BMOC may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent or Patriot and BMOC will issue in exchange for such lost,
stolen or destroyed Certificate the Paired Shares of Patriot Stock and BMOC
Stock and cash in lieu of Excess Paired Shares, if any, and fractional Paired
Shares, if any, to which such person is entitled under Section 5.4(b) (and to
the extent applicable, dividends and distributions payable pursuant to Section
5.4(c)).
ARTICLE 6.
Representations and Warranties of Wyndham
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Patriot, which shall refer to the relevant Sections of
this Agreement (the "Wyndham Disclosure Letter"), Wyndham represents and
warrants to Patriot as follows:
6.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Wyndham is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Wyndham is duly licensed or qualified to
do business as a foreign corporation and is in good standing under the laws of
any other state of the United States in which the character of the properties
owned or leased by it therein or in which the transaction of its business
makes such qualification necessary, except where the failure to be so licensed
or qualified could not reasonably be expected to have a material adverse
effect on the business, results of operations or financial condition of
Wyndham and the Wyndham Subsidiaries taken as a whole (a "Wyndham Material
Adverse Effect"). Wyndham has all requisite corporate power and authority to
own, operate, lease and encumber its properties and carry on its business as
now conducted.
(b) Each of the Wyndham Subsidiaries is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate
or partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing could not reasonably be expected to have a Wyndham Material Adverse
Effect.
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(c) Neither Wyndham nor any of the Wyndham Subsidiaries is in violation of
any order of any court, governmental authority or arbitration board or
tribunal, or any law, ordinance, governmental rule or regulation to which
Wyndham or any Wyndham Subsidiary or any of their respective properties or
assets is subject, where such violation could have a Wyndham Material Adverse
Effect. Wyndham and the Wyndham Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their business
as now conducted, where the failure to obtain any such license, permit or
authorization or to take any such action could reasonably be expected to have
a Wyndham Material Adverse Effect.
(d) Copies of the Amended and Restated Certificate of Incorporation of
Wyndham (the "Wyndham Certificate") and Bylaws of Wyndham (the "Wyndham
Bylaws") and the other charter documents, bylaws, organizational documents and
partnership and joint venture agreements (and in each such case, all
amendments thereto) of each of the Wyndham Subsidiaries are listed in Section
6.1 of the Wyndham Disclosure Letter, and the copies of such documents, which
have previously been delivered or made available to Patriot and its counsel,
are true and correct. For the purposes of this Agreement, the term "Wyndham
Subsidiary" shall include any of the entities listed under such heading in
Section 6.4 of the Wyndham Disclosure Letter.
6.2 Authorization, Validity and Effect of Agreements. Each of Wyndham and
the Wyndham Subsidiaries has the requisite power and authority to enter into
the transactions contemplated hereby and to execute and deliver this Agreement
and the Ancillary Agreements to which it is a party. The Board of Directors of
Wyndham has approved this Agreement, the Merger, and the Ancillary Agreements
to which it is a party and the other transactions contemplated by this
Agreement and has resolved to recommend that the holders of Wyndham Common
Stock adopt and approve this Agreement, as ratified by New Patriot pursuant to
the Patriot Ratification Agreement, at the Wyndham stockholders' meeting which
will be held in accordance with the provisions of Section 8.3 hereof. In
connection with the foregoing, the Board of Directors of Wyndham has taken
such actions and votes as are necessary on its part to render the provisions
of Section 203 of the DGCL and all other applicable takeover statutes
inapplicable to this Agreement, the Merger, the Stock Purchase Agreement, the
Stock Purchase and the transactions contemplated by this Agreement and the
other Ancillary Agreements. As of the date hereof, all of the directors and
executive officers of Wyndham have indicated that they presently intend to
vote all shares of Wyndham Common Stock which they own to approve this
Agreement, as ratified by New Patriot pursuant to the Patriot Ratification
Agreement, at the Wyndham stockholders' meeting which will be held in
accordance with the provisions of Section 8.3. Subject only to the approval of
this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, by the holders of two-thirds of the outstanding shares
of Wyndham Common Stock, the execution by Wyndham of this Agreement, the
Ancillary Agreements to which it is a party and consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements have
been duly authorized by all requisite corporate action on the part of Wyndham.
This Agreement constitutes, and the Ancillary Agreements to which it is a
party (when executed and delivered pursuant hereto) will constitute, the valid
and legally binding obligations of Wyndham, enforceable against Wyndham in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
6.3 Capitalization.
(a) The authorized capital stock of Wyndham consists of 45,000,000 shares of
Wyndham Common Stock and 5,000,000 shares of preferred stock, par value $.01
per share (the "Wyndham Preferred Stock"). As of the date of this Agreement,
(i) 20,018,299 shares of Wyndham Common Stock are issued and outstanding,
(ii) 2,133,811 and 50,000 shares of Wyndham Common Stock are reserved for
issuance pursuant to the Wyndham's 1996 Long Term Incentive Plan and rights
under the Wyndham's Non-Employee Directors' Retainer Stock Plan (collectively,
the "Wyndham Stock Plans"), respectively, subject to adjustment on the terms
set forth in the Wyndham Stock Plans, (iii) no shares of Wyndham Preferred
Stock were issued and outstanding, and (iv) no shares of Wyndham Common Stock
or Wyndham Preferred Stock were held in the treasury of Wyndham. As of the
date of this Agreement, Wyndham had no shares of Wyndham Common Stock reserved
for issuance other than as described above. All such issued and outstanding
shares of capital stock of Wyndham are duly
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authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth in Section 6.3 of the Wyndham Disclosure Letter,
Wyndham has no outstanding bonds, debentures, notes or other obligations the
holders of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the stockholders of
Wyndham on any matter. Except for the Existing Wyndham Options (all of which
have been issued under the Wyndham Stock Plans), there are not at the date of
this Agreement any existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements or commitments which
obligate Wyndham to issue, transfer or sell any shares of capital stock of
Wyndham. Section 6.3 of the Wyndham Disclosure Letter sets forth a full list
of the Existing Wyndham Options, including the name of the person to whom such
stock options have been granted, the number of shares subject to each option,
the per share exercise price for each option and the vesting schedule for each
option. Pursuant to the terms of the Wyndham Stock Plans, at the Effective
Time, all Existing Wyndham Options will be assumed by Patriot or BMOC in
accordance with the provisions of Section 5.2(d). Except as set forth in
Section 6.3 of the Wyndham Disclosure Letter, there are no agreements or
understandings to which Wyndham or any Wyndham Subsidiary is a party with
respect to the voting of any shares of capital stock of Wyndham or which
restrict the transfer of any such shares, nor does Wyndham have knowledge of
any such agreements or understandings with respect to the voting of any such
shares or which restrict the transfer of any such shares. Except as set forth
in Section 6.3 of the Wyndham Disclosure Letter, there are no outstanding
contractual obligations of Wyndham or any Wyndham Subsidiary to repurchase,
redeem or otherwise acquire any shares of capital stock, partnership interests
or any other securities of Wyndham or any Wyndham Subsidiary. Except as set
forth in Section 6.3 of the Wyndham Disclosure Letter, neither Wyndham nor any
Wyndham Subsidiary is under any obligation, contingent or otherwise, by reason
of any agreement to register the offer and sale or resale of any of their
securities under the Securities Act. After the Effective Time, except to the
extent set forth in Section 5.2(d), the Surviving Corporation will have no
obligation to issue, transfer or sell any shares of capital stock or other
equity interest of Wyndham or the Surviving Corporation pursuant to any
Wyndham Stock Plan or any other Wyndham Benefit Plan (as defined in Section
6.14 hereof).
6.4 Subsidiaries. Except as set forth in Section 6.4 of the Wyndham
Disclosure Letter, Wyndham owns directly or indirectly each of the outstanding
shares of capital stock or all of the partnership or other equity interests of
each of the Wyndham Subsidiaries. Each of the outstanding shares of capital
stock in each of the Wyndham Subsidiaries having corporate form is duly
authorized, validly issued, fully paid and nonassessable. Except as set forth
in Section 6.4 of the Wyndham Disclosure Letter, each of the outstanding
shares of capital stock of, or partnership or other equity interests in, each
of the Wyndham Subsidiaries is owned, directly or indirectly, by Wyndham free
and clear of all liens, pledges, security interests, claims or other
encumbrances. The following information for each Wyndham Subsidiary as of the
date hereof is set forth in Section 6.4 of the Wyndham Disclosure Letter: (i)
its name and jurisdiction of incorporation or organization; (ii) its
authorized capital stock or share capital or partnership or other interests;
(iii) the name of each stockholder or owner of a partnership or other equity
interest and the number of issued and outstanding shares of capital stock or
share capital or percentage ownership for non-corporate entities held by it;
and (iv) the name of the general partners, if applicable.
6.5 Other Interests. Except as set forth in Sections 6.4 and 6.5 of the
Wyndham Disclosure Letter and except for such Other Interests (as hereinafter
defined) of Wyndham or any of the Wyndham Subsidiaries that would not, in the
aggregate, be material to Wyndham and the Wyndham Subsidiaries, taken as a
whole, neither Wyndham nor any Wyndham Subsidiary owns directly or indirectly
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or other entity (other than
investments in short-term investment securities) (collectively "Other
Interests").
6.6 No Violation. Except as set forth in Section 6.6 of the Wyndham
Disclosure Letter (copies of which documents, except as set forth in Annex
6.6A, have been reviewed by Patriot), neither the execution and delivery by
Wyndham of this Agreement or the Ancillary Agreements nor consummation by
Wyndham of the transactions contemplated by this Agreement or the Ancillary
Agreements in accordance with their terms hereof, will: (i) conflict with or
result in a breach of any provisions of the Wyndham Certificate, the Wyndham
Bylaws, or
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the organizational documents, partnership agreements or joint venture
agreements of Wyndham or any Wyndham Subsidiary; (ii) violate, or conflict
with, or result in a breach of any provision of, or constitute a default (or
an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of termination or
cancellation of, or accelerate the performance required by, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties of Wyndham or the Wyndham Subsidiaries under, or result in being
declared void, voidable or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contract, agreement (including,
without limitation, any management or franchise agreement) or other
instrument, commitment or obligation to which Wyndham or any of the Wyndham
Subsidiaries is a party, or by which Wyndham or any of the Wyndham
Subsidiaries or any of their properties is bound or affected, except for any
of the foregoing matters which, individually or in the aggregate, could not
reasonably be expected to have a Wyndham Material Adverse Effect; or (iii)
other than the filings provided for in Article 1 of this Agreement, the Hart-
Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act or applicable state securities and "Blue Sky" laws
(collectively, the "Regulatory Filings"), require any consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority, except where the failure to obtain any
such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority could not
reasonably be expected to have a Wyndham Material Adverse Effect.
6.7 SEC Documents. Wyndham has filed all required forms, reports and
documents with the Securities and Exchange Commission ("SEC") since the
earliest date on which Wyndham became subject to the reporting obligations of
Section 13 or 15(d) of the Exchange Act (collectively, the "Wyndham SEC
Reports"), all of which were prepared in accordance with the applicable
requirements of the Exchange Act, the Securities Act and the rules and
regulations promulgated thereunder (the "Securities Laws"). The Wyndham SEC
Reports were filed with the SEC in a timely manner and constitute all forms,
reports and documents required to be filed by Wyndham under the Securities
Laws since the earliest date on which Wyndham became subject to the reporting
obligations of Section 13 or 15(d) of the Exchange Act. As of their respective
dates, the Wyndham SEC Reports (i) complied as to form in all material
respects with the applicable requirements of the Securities Laws and (ii) did
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. Each of the consolidated balance sheets of Wyndham
included in or incorporated by reference into the Wyndham SEC Reports
(including the related notes and schedules) fairly presents the consolidated
financial position of Wyndham and the Wyndham Subsidiaries as of its date and
each of the consolidated statements of income, retained earnings and cash
flows of Wyndham included in or incorporated by reference into the Wyndham SEC
Reports (including any related notes and schedules) fairly presents the
results of operations, retained earnings or cash flows, as the case may be, of
Wyndham and the Wyndham Subsidiaries for the periods set forth therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments which would not be material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein and except, in the
case of the unaudited statements, as permitted by Form 10-Q pursuant to
Section 13 or 15(d) of the Exchange Act.
6.8 Litigation. Except as set forth in Section 6.8 of the Wyndham Disclosure
Letter, there are (i) no continuing orders, injunctions or decrees of any
court, arbitrator or governmental authority to which Wyndham or any Wyndham
Subsidiary is a party or by which any of its properties or assets are bound
or, to the reasonable best knowledge of Wyndham, to which any of its
directors, officers, employees or, agents, in such capacities, is a party or
by which any of their properties or assets are bound, and (ii) no actions,
suits or proceedings pending against Wyndham or any Wyndham Subsidiary or, to
the reasonable best knowledge of Wyndham, against any of its directors,
officers, employees or agents, in such capacities, or, to the reasonable best
knowledge of Wyndham, threatened against Wyndham or any Wyndham Subsidiary or
against any of its directors, officers, employees or agents, at law or in
equity, or before or by any federal or state commission, board, bureau, agency
or instrumentality, that are reasonably likely, individually or in the
aggregate, to have a Wyndham Material Adverse Effect.
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6.9 Absence of Certain Changes. Except as disclosed in the Wyndham SEC
Reports filed with the SEC prior to the date hereof or as set forth in Section
6.9 of the Wyndham Disclosure Letter or as permitted by Section 8.2, since
December 31, 1996, Wyndham and the Wyndham Subsidiaries have conducted their
business only in the ordinary course of such business and there has not been:
(i) any Wyndham Material Adverse Effect; (ii) as of the date hereof, any
declaration, setting aside or payment of any dividend or other distribution
with respect to the Wyndham Common Stock; (iii) any material commitment,
contractual obligation (including, without limitation, any management or
franchise agreement, any lease (capital or otherwise) or any letter of
intent), borrowing, guaranty, capital expenditure or transaction (each, a
"Commitment") entered into by Wyndham or any of the Wyndham Subsidiaries
outside the ordinary course of business except for Commitments for expenses of
attorneys, accountants and investment bankers incurred in connection with the
Merger and the transactions contemplated hereby and thereby; or (iv) any
material change in Wyndham's accounting principles, practices or methods.
6.10 Taxes. Except as set forth in Section 6.10 of the Wyndham Disclosure
Letter and except as would otherwise not be reasonably expected to have a
Wyndham Material Adverse Effect (other than with respect to subsection (f)
below):
(a) Wyndham and each of the Wyndham Subsidiaries has paid or caused to be
paid all federal, state, local, foreign, and other taxes, including without
limitation, income taxes, estimated taxes, alternative minimum taxes,
excise taxes, sales taxes, use taxes, value-added taxes, gross receipts
taxes, franchise taxes, capital stock taxes, employment and payroll-related
taxes, withholding taxes, stamp taxes, transfer taxes, windfall profit
taxes, environmental taxes and real and personal property taxes, whether or
not measured in whole or in part by net income, and all deficiencies, or
other additions to tax, interest, fines and penalties (collectively,
"Taxes"), owed or accrued by it through the date hereof.
(b) Wyndham and each of the Wyndham Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any
of them through the date hereof, and all such returns completely and
accurately set forth the amount of any Taxes relating to the applicable
period.
(c) Neither the Internal Revenue Service ("IRS") nor any other
governmental authority is now asserting by written notice to Wyndham or any
Wyndham Subsidiary or, to the knowledge of Wyndham or the Wyndham
Subsidiaries, threatening to assert against Wyndham or any Wyndham
Subsidiary any deficiency or claim for additional Taxes. There is no
dispute or claim concerning any tax liability of Wyndham or any Wyndham
Subsidiary, either claimed or raised by any governmental authority, or as
to which any director or officer of Wyndham or any Wyndham Subsidiary has
reason to believe may be claimed or raised by any federal or state
governmental authority. No claim has ever been made by a taxing authority
in a jurisdiction where Wyndham does not file reports and returns that
Wyndham is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of Wyndham or any Wyndham
Subsidiary that arose in connection with any failure (or alleged failure)
to pay any Taxes. Wyndham has never entered into a closing agreement
pursuant to Section 7121 of the Code.
(d) Wyndham has not received written notice of any audit of any tax
return filed by Wyndham, and Wyndham has not been notified by any tax
authority that any such audit is contemplated or pending. Neither Wyndham
nor any of the Wyndham Subsidiaries has executed or filed with the IRS or
any other taxing authority any agreement now in effect extending the period
for assessment or collection of any income or other Taxes, and no extension
of time with respect to any date on which a tax return was or is to be
filed by Wyndham is in force. True, correct and complete copies of all
federal, state and local income or franchise tax returns filed by Wyndham
and each of the Wyndham Subsidiaries and all communications relating
thereto have been delivered to Patriot or made available to representatives
of Patriot.
(e) Wyndham and each Wyndham Subsidiary has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other party.
(f) Wyndham estimates that as of December 31, 1996, the accumulated and
current earnings and profits ("E&P") of Wyndham (as determined for federal
income tax purposes) was not in excess of $15 million.
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6.11 Books and Records.
(a) The books of account and other financial records of Wyndham and each of
the Wyndham Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in the financial statements
included in the Wyndham SEC Reports.
(b) The minute books and other records of Wyndham and each of the Wyndham
Subsidiaries have been made available to Patriot, contain in all material
respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the stockholders and directors
and any committees of the Board of Directors of Wyndham and each of the
Wyndham Subsidiaries and all actions of the partners of each of the Wyndham
Subsidiaries.
6.12 Properties. All of the real estate properties owned or leased by
Wyndham and each of the Wyndham Subsidiaries are set forth in Section 6.12 of
the Wyndham Disclosure Letter. Wyndham has no direct or indirect ownership
interest in any real property other than the properties owned by Wyndham and
the Wyndham Subsidiaries and set forth in Sections 6.5 and 6.12 of the Wyndham
Disclosure Letter. Except as set forth in Section 6.12 of the Wyndham
Disclosure Letter, Wyndham and each Wyndham Subsidiary own fee simple or
leasehold title (each as indicated in Section 6.12 of the Wyndham Disclosure
Letter) to each of the real properties identified in Section 6.12 of the
Wyndham Disclosure Letter (the "Wyndham Properties"), free and clear of liens,
mortgages or deeds of trust, claims against title, charges which are liens,
security interests or other encumbrances on title (collectively,
"Encumbrances"). The Wyndham Properties are not subject to any easements,
rights of way, covenants, conditions, restrictions or other written
agreements, laws, ordinances and regulations affecting building use or
occupancy, or reservations of an interest in title (collectively, "Property
Restrictions"), except for (i) Encumbrances, Property Restrictions and other
matters set forth in Section 6.12 of the Wyndham Disclosure Letter, (ii)
Property Restrictions imposed or promulgated by law or any governmental body
or authority with respect to real property, including zoning regulations, that
do not adversely affect the current use of the property, materially detract
from the value of or materially interfere with the present use of the
property, (iii) Encumbrances and Property Restrictions disclosed on existing
title policies, commitments (and the documents listed as exceptions therein),
reports, certificates of title, title opinions or current surveys (in each
case copies of which title policies, commitments (and the documents listed as
exceptions therein), reports and surveys have been delivered or made available
to Patriot and are listed in Section 6.12 of the Wyndham Disclosure Letter),
and (iv) mechanics', carriers', supplier's workmen's or repairmen's liens and
other Encumbrances, Property Restrictions and other limitations of any kind,
if any, which, individually or in the aggregate, are not material in amount,
do not materially detract from the value of or materially interfere with the
present use of any of the Wyndham Properties subject thereto or affected
thereby, and do not otherwise materially impair business operations conducted
by Wyndham and the Wyndham Subsidiaries and which have arisen or been incurred
only in the ordinary course of business. Except as set forth in Section 6.12
of the Wyndham Disclosure Letter, valid policies of title insurance have been
issued insuring Wyndham's or the applicable Wyndham Subsidiary's fee simple
(or leasehold to the extent disclosed in Section 6.12 of the Wyndham
Disclosure Letter) title to each of the Wyndham Properties in amounts at least
equal to the purchase price thereof or, if acquired through merger, the
stipulated value thereof, and such policies are, at the date hereof, in full
force and effect and no claim has been made against any such policy and
Wyndham has no knowledge of any facts or circumstances which would constitute
the basis for such a claim. To the best knowledge of Wyndham, except as set
forth in Section 6.12 of the Wyndham Disclosure Letter, (A) no certificate,
permit or license from any governmental authority having jurisdiction over any
of the Wyndham Properties or any agreement, easement or other right which is
necessary to permit the lawful use and operation of the buildings and
improvements on any of the Wyndham Properties as currently operated or which
is necessary to permit the lawful use and operation of all driveways, roads
and other means of egress and ingress to and from any of the Wyndham
Properties (a "REA Agreement") has not been obtained and is not in full force
and effect, and there is no pending threat of modification or cancellation of
any of same nor is Wyndham nor any Wyndham Subsidiary currently in default
under any REA Agreement and the Wyndham Properties are in full compliance with
all governmental permits,
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licenses and certificates, except for such defaults which or where such
noncompliance could not reasonably be expected to have a Patriot Material
Adverse Effect; (B) no written notice of any violation of any federal, state
or municipal law, ordinance, order, regulation or requirement affecting any
portion of any of the Wyndham Properties has been issued by any governmental
authority; (C) there are no material structural defects relating to any of the
Wyndham Properties; (D) there is no Wyndham Property whose building systems
are not in working order in any material respect; (E) there is no physical
damage to any Wyndham Property in excess of $20,000 for which there is no
insurance in effect (other than reasonable and customary deductibles) covering
the full cost of the restoration; and (F) there is no current renovation or
restoration or tenant improvements to any Wyndham Property or any portion
thereof in process or committed to be performed, the cost of which exceeds
$50,000, except in each instance as set forth in Section 6.12 of the Wyndham
Disclosure Letter. Except as noted in Section 6.12 of the Wyndham Disclosure
Letter, the use and occupancy of each of the Wyndham Properties complies in
all material respects with all applicable codes and zoning laws and
regulations, and Wyndham has no knowledge of any pending or threatened
proceeding or action that will in any manner affect the size of, use of,
improvements on, construction on, or access to any of the Wyndham Properties,
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such Wyndham Properties. Neither Wyndham nor
any of the Wyndham Subsidiaries has received any written notice to the effect
that (x) any betterment assessments have been levied against, or any
condemnation or rezoning proceedings are pending or threatened with respect to
any of the Wyndham Properties or (y) any zoning, building or similar law,
code, ordinance, order or regulation is or will be violated by the continued
maintenance, operation or use of any buildings or other improvements on any of
the Wyndham Properties or by the continued maintenance, operation or use of
the parking areas. Except as set forth on Schedule 6.12 of the Wyndham
Disclosure Letter and except as could otherwise not have a Wyndham Material
Adverse Effect, following a casualty, each of the Wyndham Properties could be
reconstructed and used for hotel purposes under applicable zoning laws and
regulations, except that in certain circumstances such reconstruction would
have to comply with the dimensional requirements of applicable zoning laws and
regulations in effect at the time of reconstruction. Except as set forth in
Sections 6.10 and 6.12 of the Wyndham Disclosure Letter and except as could
otherwise not have a Wyndham Material Adverse Effect, there are no outstanding
abatement proceedings or appeals with respect to the assessment of any Wyndham
Property for the purpose of real property taxes, and there are no agreements
with any governmental authority with respect to such assessments or tax rates
on any Wyndham Property.
6.13 Environmental Matters. Wyndham and the Wyndham Subsidiaries are in
compliance with all Environmental Laws (as defined below), except for any
noncompliance that, either singly or in the aggregate, could not have a
Wyndham Material Adverse Effect. As used in this Agreement, "Environmental
Laws" shall mean all federal, state and local laws, rules, regulations,
ordinances and orders that purport to regulate the release of hazardous
substances or other materials into the environment, or impose requirements
relating to environmental protection. Wyndham has previously made available to
Patriot copies of all documents concerning any environmental or health and
safety matter adversely affecting Wyndham and copies of environmental audits
or risk assessments, site assessments, documentation regarding off-site
disposal of Hazardous Materials (as defined below), spill control plans and
material correspondence with any federal, state or local government, court,
administrative agency, commission, or other governmental authority, domestic
or foreign, regarding the foregoing. As used in this Agreement, "Hazardous
Materials" means any "hazardous waste" as defined in either the United States
Resource Conservation and Recovery Act or regulations adopted pursuant to said
act, any "hazardous substances" or "hazardous materials" as defined in the
United States Comprehensive Environmental Response, Compensation and Liability
Act and, to the extent not included in the foregoing, any medical waste, oil
or fractions thereof, pollutants or contaminants. Except as set forth in
Section 6.13 of the Wyndham Disclosure Letter or disclosed in the Wyndham SEC
Reports and except for any matter, which if the outcome were adverse, would
not reasonably be expected to have a Wyndham Material Adverse Effect, there is
no administrative or judicial enforcement proceeding pending or to the best
knowledge of Wyndham, threatened against Wyndham or any Wyndham Subsidiary
under any Environmental Law. Except as set forth in Section 6.13 of the
Wyndham Disclosure Letter or disclosed in the Wyndham SEC Reports and except
for any matter, which if the outcome were adverse, would not reasonably be
expected to have a Wyndham Material Adverse Effect, neither Wyndham nor any
Wyndham Subsidiary or, to the best knowledge of Wyndham, any legal
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predecessor of Wyndham or any Wyndham Subsidiary, has received any written
notice that it is potentially responsible under any Environmental Law for
response costs or natural resource damages, as those terms are defined under
the Environmental Laws, at any location and, to the best knowledge of Wyndham,
neither Wyndham nor any Wyndham Subsidiary has transported or disposed of, or
allowed or arranged for any third party to transport or dispose of, any waste
containing Hazardous Materials at any location included on the National
Priorities List, as defined under the Comprehensive Environmental Response,
Compensation, and Liability Act, or any location proposed for inclusion on
that list or at any location on any analogous state list. Except as set forth
in Section 6.13 of the Wyndham Disclosure Letter, and except for any matter,
which if the outcome were adverse, would not reasonably be expected to have a
Wyndham Material Adverse Effect, Wyndham has no knowledge of any release on
the real property owned or leased by Wyndham or any Wyndham Subsidiary or
predecessor entity of Hazardous Materials in a manner that could reasonably be
expected to result in an order to perform a response action or in material
liability under the Environmental Laws and, to the best knowledge of Wyndham,
there is no hazardous waste treatment, storage or disposal facility, and
except for the following which, to the best knowledge of Wyndham, would not
reasonably be expected to have a Wyndham Material Adverse Effect based on its
current condition, underground storage tank, landfill, surface impoundment,
underground injection well, friable asbestos or PCB's, as those terms are
defined under the Environmental Laws, located at any of the real property
owned or leased by Wyndham or any Wyndham Subsidiary or predecessor entity or
facilities utilized by Wyndham or the Wyndham Subsidiaries.
6.14 Employee Benefit Plans. With respect to all the employee benefit plans,
programs and arrangements maintained for the benefit of any current or former
employee, officer or director of Wyndham or any of the Wyndham Subsidiaries
(the "Wyndham Benefit Plans"), except as set forth in Section 6.14 of the
Wyndham Disclosure Letter or in the Wyndham SEC Reports, (a) each Wyndham
Benefit Plan and any related trust intended to be qualified under Sections
401(a) and 501(a) of the Code has received a favorable determination letter
from the IRS that it is so qualified and nothing has occurred since the date
of such letter that could reasonably be expected to materially adversely
affect the qualified status of such Wyndham Benefit Plan or related trust, (b)
each Wyndham Benefit Plan has been operated in all material respects in
accordance with the terms and requirements of applicable law and all required
returns and filings for each Wyndham Benefit Plan have been timely made, (c)
neither Wyndham nor any of the Wyndham Subsidiaries has incurred any direct or
indirect material liability under, arising out of or by operation of Title I
or Title IV of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), in connection with any Wyndham Benefit Plan or other retirement
plan or arrangement, and no fact or event exists that could reasonably be
expected to give rise to any such material liability, (d) all material
contributions due and payable on or before the date hereof in respect of each
Wyndham Benefit Plan have been made in full and in proper form, (e) neither
Wyndham nor any of the Wyndham Subsidiaries have ever sponsored or been
obligated to contribute to any "multiemployer plan" (as defined in Section
3(37) of ERISA), "multiple employer plan" (as defined in Section 413 of the
Code) or "defined benefit plan" (as defined in Section 3(35) of ERISA), (f)
except as otherwise required under ERISA, the Code and applicable state laws,
no Wyndham Benefit Plan currently or previously maintained by Wyndham or any
of its subsidiaries provides any post-retirement health or life insurance
benefits, and neither Wyndham nor any of its subsidiaries maintains any
obligations to provide post-retirement health or life insurance benefits in
the future, (g) all material reporting and disclosure obligations imposed
under ERISA and the Code have been satisfied with respect to each Wyndham
Benefit Plan and (h) no benefit or amount payable or which may become payable
by Wyndham or any of the Wyndham Subsidiaries pursuant to any Wyndham Benefit
Plan, agreement or contract with any employee, shall constitute an "excess
parachute payment," within the meaning of Section 280G of the Code, which is
or may be subject to the imposition of any excise tax under Section 4999 of
the Code or which would not be deductible by reason of Section 280G of the
Code.
6.15 Labor Matters. Except as set forth in Section 6.15 of the Wyndham
Disclosure Letter, neither Wyndham nor any Wyndham Subsidiary is a party to,
or bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Wyndham, threatened against Wyndham or any of the Wyndham
Subsidiaries relating to their business, except for any such proceeding which
could not
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reasonably be expected to have a Wyndham Material Adverse Effect. To the
knowledge of Wyndham, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or threatened
involving employees of Wyndham or any of the Wyndham Subsidiaries.
6.16 No Brokers. Neither Wyndham nor any of the Wyndham Subsidiaries has
entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or Patriot to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, except that Wyndham has retained Smith
Barney Inc. ("Smith Barney") as its financial advisor in connection with the
transactions contemplated by this Agreement and the Special Committee has
retained Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch")
as its financial advisor in connection with the transactions contemplated by
this Agreement. Other than the foregoing arrangements, Patriot's arrangements
with PaineWebber Incorporated ("PaineWebber") and Salomon Brothers Inc.
("Salomon Brothers"), and the Crow Family Entities' arrangements with
Montgomery Securities, Wyndham is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby.
6.17 Opinion of Financial Advisors. Wyndham has received the oral opinion of
Smith Barney to the effect that, as of the date hereof, the Merger
Consideration is fair, from a financial point of view, to the holders of
Wyndham Common Stock. The Special Committee of the Board of Directors of
Wyndham has received the oral opinion of Merrill Lynch to the effect that, as
of the date hereof, the consideration to be received by the holders of Wyndham
Common Stock (other than the Principal Stockholder) is fair to the holders of
Wyndham Common Stock from a financial point of view.
6.18 Related Party Transactions. Set forth in the Wyndham SEC Reports and/or
Section 6.18 of the Wyndham Disclosure Letter is a list of all arrangements,
agreements and contracts entered into by Wyndham or any of the Wyndham
Subsidiaries (which are or will be in effect as of or after the date of this
Agreement) involving payments in excess of $60,000 with (i) any consultant
(excluding legal counsel, accountants and financial advisors), or (ii) any
person who is an officer, director or affiliate of Wyndham or any of the
Wyndham Subsidiaries, any relative of any of the foregoing or any entity of
which any of the foregoing is an affiliate or (iii) any person who acquired
Wyndham Stock in a private placement. All such documents are listed in
Schedule A of Section 6.18 of the Wyndham Disclosure Letter, and the copies of
such documents, which, other than as set forth in Annex 6.18 to Section 6.18
of the Wyndham Disclosure Letter, have previously been provided or made
available to Patriot and its counsel, are true and correct copies.
6.19 Contracts and Commitments.
(a) Sections 6.5, 6.6, 6.12 and 6.19 of the Wyndham Disclosure Letter sets
forth (i) all notes, debentures, bonds and other evidence of indebtedness
which are secured or collateralized by (A) mortgages, deeds of trust or other
security interests in the Wyndham Properties or personal property of Wyndham
or any of the Wyndham Subsidiaries, or (B) any direct or indirect ownership
interest in Wyndham or any of the Wyndham Subsidiaries, (ii) each Commitment
entered into by Wyndham or any of the Wyndham Subsidiaries other than
Commitments entered into with unaffiliated third parties in the ordinary
course of operations at Wyndham's individual hotels which may result in total
payments by or liability of Wyndham or any Wyndham Subsidiary in excess of
$50,000 and (iii) all material leases and subleases entered into by Wyndham or
any of the Wyndham Subsidiaries as lessee or sublessee which may result in
total payments or liability in excess of $50,000. Descriptions of the
foregoing are listed in Sections 6.5, 6.6, 6.12 and 6.19 of the Wyndham
Disclosure Letter, and the copies of such documents, which, other than as set
forth in Annex 6.6 to Section 6.6 of the Wyndham Disclosure Letter and Annex
6.19 to Section 6.19 of the Wyndham Disclosure Letter, have previously been
provided or made available to Patriot and its counsel, are true and correct.
None of Wyndham or any of the Wyndham Subsidiaries has received any written
notice of a default that has not been cured under any of the documents
described or is in default respecting any payment obligations thereunder
beyond any applicable grace periods except where such default could not
reasonably be expected to have a Wyndham Material Adverse Effect.
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(b) All joint venture agreements to which Wyndham or any of the Wyndham
Subsidiaries is a party are set forth in Sections 6.5, 6.6 and 6.19 of the
Wyndham Disclosure Letter and neither Wyndham nor any of the Wyndham
Subsidiaries is in default with respect to any obligations, which individually
or in the aggregate are material, thereunder.
(c) Section 6.19 of the Wyndham Disclosure Letter sets forth all of the
franchise, management, marketing, affiliation or other agreements or contracts
pursuant to which Wyndham or any of the Wyndham Subsidiaries provide
franchise, license, sales, marketing, reservation, management or operation
services to or for any hotels (collectively, the "Operating Agreements").
Except as expressly set forth in Section 6.19 of the Wyndham Disclosure
Letter, (i) other than as set forth in Annex 6.19 to Section 6.19 of the
Wyndham Disclosure Letter, Wyndham has delivered or made available to Patriot
and its counsel true, correct and complete copies of all of the Operating
Agreements; (ii) each of the Operating Agreements is legal, valid, binding,
enforceable and in full force and effect as to Wyndham and/or the applicable
Wyndham Subsidiaries, and, except as could not reasonably be expected to have
a Wyndham Material Adverse Effect, will continue to be legal, valid, binding,
enforceable and in full force and effect on identical terms after the Closing;
(iii) neither Wyndham nor any of the Wyndham Subsidiaries is in breach or
default thereof in any material respect; (iv) none of the Operating Agreements
have been modified in any material respect, except to the extent disclosed in
the documents delivered or made available to Patriot and its counsel; (v)
except as set forth in Section 6.4 of the Wyndham Disclosure Letter, neither
Wyndham nor any of the Wyndham Subsidiaries have assigned, transferred,
conveyed, mortgaged or encumbered any interest in any of the Operating
Agreements; (vii) except as could not reasonably be expected to have a Wyndham
Material Adverse Effect, neither Wyndham nor any of the Wyndham Subsidiaries
have in the past been required, are currently required or anticipate being
required to make any payments or loans to any party under any of the Operating
Agreements as a result of the failure of a hotel to meet or exceed any
performance thresholds or to prevent any other party from exercising a right
to terminate any of the Operating Agreements.
6.20 Disclosure. The representations, warranties and statements made by
Wyndham in this Agreement, the Ancillary Agreements and in the Wyndham
Disclosure Letter and in the certificates and other documents expressly
identified in this Agreement as having been delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when taken together with
each other and the Wyndham SEC Reports, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
6.21 Definition of Wyndham's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Wyndham" or "to the best knowledge of Wyndham" or
any similar phrase means the actual, not the constructive or imputed,
knowledge of those individuals identified in Section 6.21 of the Wyndham
Disclosure Letter.
ARTICLE 7.
Representations and Warranties of Patriot
Except as set forth in the disclosure letter delivered at or prior to the
execution hereof to Wyndham, which shall refer to the relevant Sections of
this Agreement (the "Patriot Disclosure Letter"), Patriot represents and
warrants to Wyndham as follows:
7.1 Existence; Good Standing; Authority; Compliance With Law.
(a) Patriot is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation. Patriot is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it therein or in which the
transaction of its business makes such qualification necessary, except where
the failure to be so licensed or qualified could not reasonably be expected to
have a material
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adverse effect on the business, results of operations or financial condition
of Patriot and the Patriot Subsidiaries taken as a whole (a "Patriot Material
Adverse Effect"). Patriot has all requisite corporate power and authority to
own, operate, lease and encumber its properties and carry on its business as
now conducted.
(b) Each of the Patriot Subsidiaries is a corporation or partnership duly
incorporated or organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization, has the corporate
or partnership power and authority to own its properties and to carry on its
business as it is now being conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except
for jurisdictions in which such failure to be so qualified or to be in good
standing could not reasonably be expected to have a Patriot Material Adverse
Effect.
(c) Neither Patriot nor any Patriot Subsidiary is in violation of any order
of any court, governmental authority or arbitration board or tribunal, or any
law, ordinance, governmental rule or regulation to which Patriot or any
Patriot Subsidiary or any of their respective properties or assets is subject,
where such violation could have a Patriot Material Adverse Effect. Patriot and
the Patriot Subsidiaries have obtained all licenses, permits and other
authorizations and have taken all actions required by applicable law or
governmental regulations in connection with their business as now conducted,
where the failure to obtain any such license, permit or authorization or to
take any such action could have a Patriot Material Adverse Effect.
(d) Copies of the Patriot Certificate, the Patriot Bylaws and the charter
documents, bylaws, organizational documents and partnership and joint venture
agreements (and in each such case, all amendments thereto) of each of the
Patriot Subsidiaries are listed in Section 7.1 of the Patriot Disclosure
Letter, and the copies of such documents, which have previously been delivered
or made available to Wyndham or its counsel, are true and correct copies. For
purposes of this Agreement, the term "Patriot Subsidiary" shall include any of
the entities set forth under such heading in Section 7.4 of the Patriot
Disclosure Letter.
7.2 Authorization, Validity and Effect of Agreements. Each of Patriot and
the Patriot Subsidiaries has the requisite power and authority to enter into
the transactions contemplated hereby and to execute and deliver this Agreement
and the Ancillary Agreements to which it is a party. The Board of Directors of
Patriot has approved this Agreement, the Merger, the Stock Purchase Agreement,
the Pairing Agreement Amendment (as hereinafter defined) and the other
Ancillary Agreements to which it is a party and the other transactions
contemplated by this Agreement and has resolved to recommend that the holders
of Patriot Stock adopt and approve this Agreement, as ratified by New Patriot
pursuant to the Patriot Ratification Agreement, the Pairing Agreement
Amendment and, if stockholder approval of the Stock Purchase Agreement is
required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement, at the stockholders' meeting of Patriot which will be held in
accordance with the provisions of Section 8.3 hereof. As of the date hereof,
all of the directors and executive officers of Patriot have indicated that
they presently intend to vote all shares of Patriot Stock which they will own
following consummation of the Business Combination to approve this Agreement,
as ratified by New Patriot pursuant to the Patriot Ratification Agreement, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required by applicable law or the rules of the NYSE, the Stock
Purchase Agreement, at the Patriot stockholders' meeting which will be held in
accordance with the provisions of Section 8.3. Except as set forth in Section
7.2 of the Patriot Disclosure Letter, the execution by Patriot of this
Agreement, the Ancillary Agreements and consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements have been duly
authorized by all requisite corporate action on the part of Patriot. This
Agreement constitutes, and the Ancillary Agreements to which it will become a
party (when executed and delivered pursuant hereto) will constitute, the valid
and legally binding obligations of Patriot, enforceable against Patriot in
accordance with their respective terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
7.3 Capitalization. The authorized capital stock of Patriot consists of
200,000,000 shares of Patriot Stock, and 20,000,000 shares of preferred stock,
no par value ("Patriot Preferred Stock"). As of the date hereof, Patriot has
43,613,496 shares of Patriot Stock and no shares of Patriot Preferred Stock
issued and outstanding.
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Patriot has reserved for issuance only the following shares of Patriot Stock:
(i) 8,962,418 shares of Patriot Stock to be issued upon the conversion of
units of limited partnership interests in Patriot OP, and (ii) 5,000,000
shares, 300,000 shares and 860,000 shares of Patriot Stock to be issued
pursuant to Patriot's 1995 Incentive Plan, Patriot's Non-Employee Directors'
Incentive Plan (collectively, the "Patriot Stock Plans"), and grants made
outside of such plans, respectively (collectively, the "Existing Patriot
Options"). All such issued and outstanding shares of Patriot Stock are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Patriot has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of Patriot on any matter. Except as set forth in Section 7.3
of the Patriot Disclosure Letter and except for the Existing Patriot Options,
there are not at the date of this Agreement any existing options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements or
commitments which obligate Patriot to issue, transfer or sell any shares of
Patriot Stock. Except as set forth in Section 7.3 of the Patriot Disclosure
Letter, there are no agreements or understandings to which Patriot or any
Patriot Subsidiary is a party with respect to the voting of any shares of
Patriot Stock or which restrict the transfer of any such shares, nor does
Patriot have knowledge of any such agreements or understandings with respect
to the voting of any such shares or which restrict the transfer of such
shares. Except as set forth in Section 7.3 of the Patriot Disclosure Letter,
there are no outstanding material contractual obligations of Patriot or any
Patriot Subsidiary to repurchase, redeem or otherwise acquire any shares of
capital stock, partnership interests or any other securities of Patriot or any
Patriot Subsidiary. Except as set forth in Section 7.3 of the Patriot
Disclosure Letter, neither Patriot nor any Patriot Subsidiary is under any
obligation, contingent or otherwise, by reason of any agreement to register
the offer and sale or resale of any of their securities under the Securities
Act.
7.4 Subsidiaries. Except as set forth in Section 7.4 of the Patriot
Disclosure Letter, Patriot owns all of the outstanding shares of capital stock
or all of the partnership or other equity interests of each of the Patriot
Subsidiaries. All of the outstanding shares of capital stock of each of the
Patriot Subsidiaries having corporate form are duly authorized, validly
issued, fully paid and nonassessable. Except as set forth in Section 7.4 of
the Patriot Disclosure Letter, each of the outstanding shares of capital stock
of, or partnership or other equity interests in, each of the Patriot
Subsidiaries is owned, directly or indirectly, by Patriot free and clear of
all liens, pledges, security interests, claims or other encumbrances. The
following information as of the date hereof is set forth in Section 7.4 of the
Patriot Disclosure Letter for each Patriot Subsidiary: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital
stock or share capital or partnership or other interests; (iii) the name of
each stockholder or owner of a partnership or other equity interest and the
number of issued and outstanding shares of capital stock or share capital or
percentage ownership for non-corporate entities held by it; and (iv) the name
of the general partners, if applicable. Except as set forth in Section 7.4 of
the Patriot Disclosure Letter, neither Patriot nor any Patriot Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, business, trust or other entity
(other than investments in short-term investment securities).
7.5 No Violation. Except as set forth in Section 7.5 of the Patriot
Disclosure Letter, neither the execution and delivery by Patriot of this
Agreement or the Ancillary Agreements nor consummation by Patriot of the
transactions contemplated by this Agreement or the Ancillary Agreements in
accordance with their terms, will: (i) conflict with or result in a breach of
any provisions of the Patriot Certificate, the Surviving Corporation
Certificate, the Patriot Bylaws, or the Surviving Corporation Bylaws, or the
organizational documents, partnership agreements or joint venture agreements
of Patriot or any Patriot Subsidiary; (ii) result in a breach or violation of,
a default under, or the triggering of any payment or other material
obligations pursuant to, or accelerate vesting under, any of the Patriot Stock
Plans, or any grant or award under any of the foregoing; (iii) violate, or
conflict with, or result in a breach of any provision of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties of Patriot or any of the Patriot Subsidiaries
under, or result in being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any license, franchise, permit, lease,
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contract, agreement or other instrument, commitment or obligation to which
Patriot or any of the Patriot Subsidiaries is a party, or by which Patriot or
any of the Patriot Subsidiaries or any of their properties is bound or
affected, except for any of the foregoing matters which, individually or in
the aggregate, could not reasonably be expected to have a Patriot Material
Adverse Effect; or (iv) other than the Regulatory Filings, require any
consent, approval or authorization of, or declaration, filing or registration
with, any governmental or regulatory authority except where the failure to
obtain any such consent, approval or authorization of, or declaration, filing
or registration with, any governmental or regulatory authority could not
reasonably be expected to have a Patriot Material Adverse Effect.
7.6 SEC Documents. Patriot has filed all required forms, reports and
documents with the SEC since December 31, 1995 (collectively, the "Patriot SEC
Reports") all of which were prepared in accordance with the applicable
requirements of the Securities Laws. The Patriot SEC Reports were filed with
the SEC in a timely manner and constitute all forms, reports and documents
required to be filed by Patriot since December 31, 1995 under the Securities
Laws. As of their respective dates, the Patriot SEC Reports (i) complied as to
form in all material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the consolidated balance
sheets of Patriot included in or incorporated by reference into the Patriot
SEC Reports (including the related notes and schedules) fairly presents the
consolidated financial position of Patriot and the Patriot Subsidiaries as of
its date and each of the consolidated statements of income, retained earnings
and cash flows of Patriot included in or incorporated by reference into the
Patriot SEC Reports (including any related notes and schedules) fairly
presents the results of operations, retained earnings or cash flows, as the
case may be, of Patriot and the Patriot Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments which would not be material in amount or effect), in each
case in accordance with generally accepted accounting principles consistently
applied during the periods involved, except as may be noted therein and
except, in the case of the unaudited statements, as permitted by Form 10-Q
pursuant to Section 13 or 15(d) of the Exchange Act.
7.7 Litigation. There are (i) no continuing orders, injunctions or decrees
of any court, arbitrator or governmental authority to which Patriot or any
Patriot Subsidiary is a party or by which any of its properties or assets are
bound or, to the reasonable best knowledge of Patriot, to which any of its
directors, officers, employees or agents, in such capacities, is a party or by
which any of their properties or assets are bound, and (ii) no actions, suits
or proceedings pending against Patriot or any Patriot Subsidiary or, to the
reasonable best knowledge of Patriot, against any of its directors, officers,
employees or agents or, to the reasonable best knowledge of Patriot,
threatened against Patriot or any Patriot Subsidiary or against any of its
directors, officers, employees or agents, in such capacities, at law or in
equity, or before or by any federal or state commission, board, bureau, agency
or instrumentality, that are reasonably likely, individually or in the
aggregate, to have a Patriot Material Adverse Effect.
7.8 Absence of Certain Changes. Except as disclosed in the Patriot SEC
Reports filed with the SEC prior to the date hereof, since December 31, 1996
and except as set forth in Section 7.8 of the Patriot Disclosure Letter or as
permitted by Section 8.2, Patriot and the Patriot Subsidiaries have conducted
their business only in the ordinary course of such business and there has not
been (i) any Patriot Material Adverse Effect; (ii) as of the date hereof, any
declaration, setting aside or payment of any dividend or other distribution
with respect to the Patriot Stock, except dividends of $0.2625 per share to be
paid on April 30, 1997; or (iii) any material change in Patriot's accounting
principles, practices or methods.
7.9 Taxes. Except as set forth in Section 7.9 of the Patriot Disclosure
Letter and except as would otherwise not be reasonably expected to have a
Patriot Material Adverse Effect:
(a) Patriot and each of the Patriot Subsidiaries has paid or caused to be
paid Taxes, owed or accrued by it through the date hereof.
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(b) Patriot and each of the Patriot Subsidiaries has timely filed all
federal, state, local and foreign tax returns required to be filed by any
of them through the date hereof, and all such returns completely and
accurately set forth the amount of any Taxes relating to the applicable
period.
(c) Neither the IRS nor any other governmental authority is now asserting
by written notice to Patriot or any Patriot Subsidiary or, to the knowledge
of Patriot or the Patriot Subsidiaries, threatening to assert against
Patriot any deficiency or claim for additional Taxes. There is no dispute
or claim concerning any tax liability of Patriot, either claimed or raised
by any governmental authority, or as to which any director or officer of
Patriot has reason to believe may be claimed or raised by any governmental
authority. No claim has ever been made by a taxing authority in a
jurisdiction where Patriot does not file reports and returns that Patriot
is or may be subject to taxation by that jurisdiction. There are no
security interests on any of the assets of Patriot or any Patriot
Subsidiary that arose in connection with any failure (or alleged failure)
to pay any Taxes. Patriot has never entered into a closing agreement
pursuant to Section 7121 of the Code.
(d) Patriot has not received written notice of any audit of any tax
return filed by Patriot, no such audit is in progress, and Patriot has not
been notified by any tax authority that any such audit is contemplated or
pending. Neither Patriot nor any of the Patriot Subsidiaries has executed
or filed with the IRS or any other taxing authority any agreement now in
effect extending the period for assessment or collection of any income or
other Taxes, and no extension of time with respect to any date on which a
tax return was or is to be filed by Patriot is in force. True, correct and
complete copies of all federal, state and local income or franchise tax
returns filed by Patriot and each of the Patriot Subsidiaries and all
communications relating thereto have been delivered to Wyndham or made
available to representatives of Wyndham.
(e) Patriot and each Patriot Subsidiary has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other party.
(f) Each of the corporate Patriot Subsidiaries of which all the
outstanding capital stock is owned solely by Patriot is a Qualified REIT
Subsidiary as defined in Section 856(i) of the Code.
(g) Patriot has qualified, and shall be qualified through the date of
consummation of the Business Combination, to be treated as a REIT within
the meaning of Sections 856-860 of the Code, including, without limitation,
the requirements of Sections 856 and 857 of the Code, for all applicable
tax years to which Patriot's federal income tax returns are subject to
audit and Patriot is subject to assessment for taxes reportable therein.
(h) Assuming the accuracy of the representations made by CJC in Sections
9.10 and 9.11 of the Business Combination Agreement and the representations
made by BMOC in Section 8.8 of the Business Combination Agreement, the
consummation of the Business Combination and the Merger would not, if
consummated as of the date of this Agreement, with the Merger immediately
following the Business Combination, cause CJC to lose its exemption from
the application of Section 269B(a)(3) of the Code pursuant to Section
136(c)(3) of the Deficit Reduction Act of 1984 (the "Deficit Act"). As of
the date hereof, Patriot has no knowledge, without independent inquiry, of
any facts indicating that the foregoing representations made by CJC and
BMOC are inaccurate.
7.10 Books and Records.
(a) The books of account and other financial records of Patriot and each of
the Patriot Subsidiaries are true, complete and correct in all material
respects, have been maintained in accordance with good business practices, and
are accurately reflected in all material respects in the financial statements
included in the Patriot SEC Reports.
(b) The minute books and other records of Patriot and each of the Patriot
Subsidiaries have been made available to Wyndham, contain in all material
respects accurate records of all meetings and accurately reflect in all
material respects all other corporate action of the shareholders and directors
and any committees of the Board of Directors of Patriot and each of the
Patriot Subsidiaries.
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7.11 Properties. All of the real estate properties owned or leased by
Patriot and each of the Patriot Subsidiaries are set forth in Section 7.11 of
the Patriot Disclosure Letter. Except as set forth in Section 7.11 of the
Patriot Disclosure Letter, Patriot owns fee simple or leasehold title (each as
indicated in Section 7.11 of the Patriot Disclosure Letter) to each of the
real properties identified in Section 7.11 of the Patriot Disclosure Letter
(the "Patriot Properties"), free and clear of Encumbrances, and except as set
forth in Section 7.11 of the Patriot Disclosure Letter, there are no
Encumbrances which affect such properties. The Patriot Properties
(specifically including the leasehold interest therein granted to a tenant)
are not subject to any Property Restrictions, except for (i) Encumbrances and
Property Restrictions and other matters set forth in Section 7.11 of the
Patriot Disclosure Letter, (ii) Property Restrictions imposed or promulgated
by law or any governmental body or authority with respect to real property,
including zoning regulations that do not adversely affect the current use of
the property, materially detract from the value or materially interfere with
the present use of the property, (iii) Encumbrances and Property Restrictions
disclosed on existing title policies, commitments (and the documents listed as
exceptions therein), reports or current surveys (in each case, except as
provided in Section 7.11 of the Patriot Disclosure Letter, copies of which
title policies, commitments (and the documents listed as exceptions therein),
reports and surveys have been delivered or made available to Wyndham and are
listed in Section 7.11 of the Patriot Disclosure Letter), and (iv) mechanics',
carriers', supplier's, workmen's or repairmen's liens and other Encumbrances,
Property Restrictions and other limitations of any kind, if any, which,
individually or in the aggregate, are not material in amount, do not
materially detract from the value of or materially interfere with the present
use of any of the Patriot Properties subject thereto or affected thereby, and
do not otherwise materially impair business operations conducted by Patriot,
or its tenant, and the Patriot Subsidiaries and which have arisen or been
incurred only in the ordinary course of business. Such Encumbrances and
Property Restrictions described in Section 7.11 of the Patriot Disclosure
Letter are not convertible into shares of capital stock of Patriot or any
Patriot Subsidiary nor does Patriot or any Patriot Subsidiary hold a
participating interest therein. Valid policies of title insurance have been
issued insuring Patriot's the fee simple title (or, to the extent disclosed in
Section 7.11 of the Patriot Disclosure Letter, the leasehold estate) in the
Patriot Properties and Patriot is the named insured in such title insurance
policies. Such policies are maintained with respect to each of the Patriot
Properties in an amount of (i) the cost of acquisition of such property (or,
if acquired through merger, the stipulated value thereof) or (ii) the cost of
construction by Patriot and the Patriot Subsidiaries of the improvements
located on such property (measured at the time of such construction), except,
in each case, (x) as listed in Section 7.11 of the Patriot Disclosure Letter
or (y) where the failure to maintain such title insurance could not have a
Patriot Material Adverse Effect. Such policies are, at the date hereof, in
full force and effect and no claim has been made against any such policy and
Patriot has no knowledge of any facts or circumstances which would constitute
a basis for such a claim. To the best knowledge of Patriot, (i) no
certificate, permit or license from any governmental authority having
jurisdiction over any of the Patriot Properties or any agreement, easement or
other right which is necessary to permit the lawful use and operation of the
buildings and improvements on any of the Patriot Properties or which is
necessary to permit the lawful use and operation of all driveways, roads and
other means of egress and ingress to and from any of the Patriot Properties
has not been obtained and is not in full force and effect, and there is no
pending threat of modification or cancellation of any of same; (ii) no written
notice of any violation of any federal, state or municipal law, ordinance,
order, regulation or requirement affecting any portion of any of the Patriot
Properties has been issued by any governmental authority; (iii) there are no
structural defects relating to any of the Patriot Properties; (iv) there is no
Patriot Property whose building systems are not in working order in any
material respect; (v) there is no physical damage to any Patriot Property in
excess of $20,000 for which there is no insurance in effect (other than
reasonable and customary deductibles) covering the full cost of the
restoration; and (vi) there is no current renovation or restoration to any
Patriot Property, the cost of which exceeds $50,000, except in each instance
as set forth in Section 7.11 of the Patriot Disclosure Letter. Except as noted
in Section 7.11 of the Patriot Disclosure Letter, Patriot and the Patriot
Subsidiaries have valid and subsisting leases for all leased Patriot
Properties, the use and occupancy of each of the Patriot Properties complies
in all material respects with all applicable codes and zoning laws and
regulations, and Patriot has no knowledge of any pending or threatened
proceeding or action that will in any manner affect the size of, use of,
improvements on, construction on, or access to any of the Patriot Properties,
with such exceptions as are not material and do not interfere with the use
made and proposed to be made of such Patriot Properties. Neither Patriot nor
any of the Patriot Subsidiaries has received any written
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notice to the effect that (A) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the Patriot Properties or (B) any
zoning, building or similar law, code, ordinance, order or regulation is or
will be violated by the continued maintenance, operation or use of any
buildings or other improvements on any of the Patriot Properties or by the
continued maintenance, operation or use of the parking areas. Except as set
forth on Schedule 7.11 of the Patriot Disclosure Letter and except as could
otherwise not have a Patriot Material Adverse Effect, following a casualty,
each of the Patriot Properties could be reconstructed and used for hotel
purposes under applicable zoning laws and regulations, except that in certain
circumstances such reconstruction would have to comply with the dimensional
requirements of applicable zoning laws and regulations in effect at the time
of reconstruction. Except as set forth in Sections 7.9 and 7.11 of the Patriot
Disclosure Letter and except as could otherwise not have a Patriot Material
Adverse Effect, there are no outstanding abatement proceedings or appeals with
respect to the assessment of any Patriot Property for the purpose of real
property taxes, and there are no agreements with any governmental authority
with respect to such assessments or tax rates on any Patriot Property.
7.12 Environmental Matters. Patriot and the Patriot Subsidiaries are in
compliance with all Environmental Laws, except for any noncompliance that,
either singly or in the aggregate, could not have a Patriot Material Adverse
Effect. Except as set forth in Section 7.12 of the Patriot Disclosure Letter,
Patriot has previously made available to Wyndham copies of all documents
concerning any environmental or health and safety matter adversely affecting
Patriot and copies of environmental audits or risk assessments, site
assessments, documentation regarding off-site disposal of Hazardous Materials,
spill control plans and material correspondence with any federal, state or
local government, court, administrative agency, commission, or other
governmental authority, domestic or foreign, regarding the foregoing. Except
as set forth in Section 7.12 of the Patriot Disclosure Letter or disclosed in
the Patriot SEC Reports and except for any matter, which if the outcome were
adverse, would not reasonably be expected to have a Patriot Material Adverse
Effect, there is no administrative or judicial enforcement proceeding pending
or to the best knowledge of Patriot, threatened against Patriot or any Patriot
Subsidiary under any Environmental Law. Except as set forth in Section 7.12 of
the Patriot Disclosure Letter or disclosed in the Patriot SEC Reports and
except for any matter, which if the outcome were adverse, would not reasonably
be expected to have a Patriot Material Adverse Effect, neither Patriot nor any
Patriot Subsidiary or, to the best knowledge of Patriot, any legal predecessor
of Patriot or any Patriot Subsidiary, has received any written notice that it
is potentially responsible under any Environmental Law for response costs or
natural resource damages, as those terms are defined under the Environmental
Laws, at any location and, to the best knowledge of Patriot, neither Patriot
nor any Patriot Subsidiary has transported or disposed of, or allowed or
arranged for any third party to transport or dispose of, any waste containing
Hazardous Materials at any location included on the National Priorities List,
as defined under the Comprehensive Environmental Response, Compensation, and
Liability Act, or any location proposed for inclusion on that list or at any
location on any analogous state list. Except as set forth in Section 7.12 of
the Patriot Disclosure Letter, and except for any matter, which if the outcome
were adverse, would not reasonably be expected to have a Patriot Material
Adverse Effect, Patriot has no knowledge of any release on the real property
owned or leased by Patriot or any Patriot Subsidiary or predecessor entity of
Hazardous Materials in a manner that could reasonably be expected to result in
an order to perform a response action or in material liability under the
Environmental Laws and, to the best knowledge of Patriot, there is no
hazardous waste treatment, storage or disposal facility, and except for the
following which, to the best knowledge of Patriot, would not reasonably be
expected to have Patriot Material Adverse Effect based on its current
condition, underground storage tank, landfill, surface impoundment,
underground injection well, friable asbestos or PCB's, as those terms are
defined under the Environmental Laws, located at any of the real property
owned or leased by Patriot or any Patriot Subsidiary or predecessor entity or
facilities utilized by Patriot or the Patriot Subsidiaries.
7.13 Employee Benefit Plans. With respect to all the employee benefit plans,
programs and arrangements maintained for the benefit of any current or former
employee, officer or director of Patriot or any of its subsidiaries (the
"Patriot Benefit Plans"), except as set forth in Section 7.13 of the Patriot
Disclosure Letter or in the Patriot SEC Reports, (a) each Patriot Benefit Plan
has been operated in all material respects in accordance with the terms and
requirements of applicable law and all required returns and filings for each
Patriot Benefit
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Plan have been timely made, (b) neither Patriot nor any of the Patriot
Subsidiaries has incurred any direct or indirect material liability under,
arising out of or by operation of Title I or Title IV of ERISA, in connection
with any Patriot Benefit Plan or other retirement plan or arrangement, and no
fact or event exists that could reasonably be expected to give rise to any
such material liability, (c) all material contributions due and payable on or
before the date hereof in respect of each Patriot Benefit Plan have been made
in full and in proper form, (d) neither Patriot nor any of the Patriot
Subsidiaries have ever sponsored or been obligated to contribute to any
"multiemployer plan" (as defined in Section 3(37) of ERISA), "multiple
employer plan" (as defined in Section 413 of the Code) or "pension plan" (as
defined in Section 3(2) of ERISA), (e) except as otherwise required under
ERISA, the Code and applicable state laws, no Patriot Benefit Plan currently
or previously maintained by Patriot or any of the Patriot Subsidiaries
provides any post-retirement health or life insurance benefits, and neither
Patriot nor any of the Patriot Subsidiaries maintains any obligations to
provide post-retirement health or life insurance benefits in the future, (f)
all material reporting and disclosure obligations imposed under ERISA and the
Code have been satisfied with respect to each Patriot Benefit Plan and (g) no
benefit or amount payable or which may become payable by Patriot or any of the
Patriot Subsidiaries pursuant to any Patriot Benefit Plan, agreement or
contract with any employee in connection with the Merger, shall constitute an
"excess parachute payment," within the meaning of Section 280G of the Code,
which is or may be subject to the imposition of any excise tax under Section
4999 of the Code or which would not be deductible by reason of Section 280G of
the Code.
7.14 Labor Matters. Except as set forth in Section 7.14 of the Patriot
Disclosure Letter, neither Patriot nor any Patriot Subsidiary is a party to,
or bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor union organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of Patriot, threatened against Patriot or any of the Patriot
Subsidiaries relating to their business, except for any such proceeding which
could not reasonably be expected to have a Patriot Material Adverse Effect. To
the knowledge of Patriot, there are no organizational efforts with respect to
the formation of a collective bargaining unit presently being made or
threatened involving employees of Patriot or any of the Patriot Subsidiaries.
7.15 No Brokers. Neither Patriot nor any of the Patriot Subsidiaries has
entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of such entity or Wyndham to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation of
the transactions contemplated hereby, except that Patriot has retained
PaineWebber and Salomon Brothers as its financial advisors in connection with
the transactions contemplated by this Agreement. Other than the foregoing
arrangements, Wyndham's arrangements with Smith Barney, the arrangement of the
Special Committee with Merrill Lynch, and the Crow Family Entities'
arrangements with Montgomery Securities, Patriot is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or
consummation of the transactions contemplated hereby.
7.16 Opinion of Financial Advisor. Patriot has received the opinion of
PaineWebber to the effect that, as of the date hereof, the Merger
Consideration is fair to the holders of Patriot Stock from a financial point
of view.
7.17 Wyndham Stock Ownership. Neither Patriot nor any of the Patriot
Subsidiaries owns any shares of capital stock of Wyndham or other securities
convertible into capital stock of Wyndham.
7.18 Related Party Transactions. Set forth in the Patriot SEC Reports and/or
Section 7.18 of the Patriot Disclosure Letter is a list of all arrangements,
agreements and contracts entered into by Patriot or any of the Patriot
Subsidiaries (which are or will be in effect as of or after the date of this
Agreement) involving payments in excess of $60,000 with (i) any consultant
(excluding legal counsel, accountants and financial advisors), (ii) any person
who is an officer, director or affiliate of Patriot or any of the Patriot
Subsidiaries, any relative of any of the foregoing or any entity of which any
of the foregoing is an affiliate or (iii) any person who acquired Patriot
Stock in a private placement. All such documents are listed in Section 7.18 of
the Patriot Disclosure Letter and
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the copies of such documents, which have previously been provided or made
available to Wyndham and its counsel, are true and correct.
7.19 Contracts and Commitments.
(a) Sections 7.5 and 7.19 of the Patriot Disclosure Letter sets forth (i)
all notes, debentures, bonds and other evidence of indebtedness which are
secured or collateralized by mortgages, deeds of trust or other security
interests in the Patriot Properties or personal property of Patriot and each
of the Patriot Subsidiaries, (ii) each Commitment entered into by Patriot or
any of the Patriot Subsidiaries which may result in total payments or
liability in excess of $50,000, and (iii) all leases and subleases entered
into by Patriot or any of the Patriot Subsidiaries, as lessor or sublessor
which may result in total payments or liability in excess of $50,000.
Descriptions of the foregoing are listed in Sections 7.5 and 7.19 of the
Patriot Disclosure Letter and the copies of such documents, which have
previously been provided or made available to Wyndham and its counsel, are
true and correct copies. None of Patriot or any of the Patriot Subsidiaries
has received any written notice of a default that has not been cured under any
of the documents described above or is in default respecting any payment
obligations thereunder beyond any applicable grace periods, except where such
default could not reasonably be expected to have a Patriot Material Adverse
Effect.
(b) All joint venture agreements to which Patriot or any of the Patriot
Subsidiaries is a party are set forth in Sections 7.5 and 7.19 of the Patriot
Disclosure Letter and neither Patriot nor any of the Patriot Subsidiaries is
in default with respect to any obligations, which individually or in the
aggregate are material, thereunder.
7.20 Patriot Stock. The Patriot Stock to be issued in connection with the
Merger and this Agreement, when issued in accordance with the terms of this
Agreement, will have been duly and validly authorized by all necessary
corporate action on the part of Patriot. The Patriot Stock to be issued in
connection with the Merger and this Agreement, when issued in accordance with
the terms of this Agreement, will be validly issued, fully paid, nonassessable
and free of preemptive rights.
7.21 Disclosure. The representations, warranties and statements made by
Patriot in this Agreement, the Ancillary Agreements and in the Patriot
Disclosure Letter and in the certificates and other documents expressly
identified in this Agreement as having been delivered pursuant hereto do not
contain any untrue statement of a material fact, and, when taken together with
each other and the Patriot SEC Reports, do not omit to state any material fact
necessary to make such representations, warranties and statements, in light of
the circumstances under which they are made, not misleading.
7.22 Definition of Patriot's Knowledge. As used in this Agreement, the
phrase "to the knowledge of Patriot" or "to the best knowledge of Patriot" or
any similar phrase means the actual knowledge of those individuals identified
in Section 7.22 of the Patriot Disclosure Letter.
ARTICLE 8.
Covenants
8.1 Acquisition Proposals.
(a) Wyndham represents and warrants that it has terminated any discussions
or negotiations relating to, or that may reasonably be expected to lead to,
any Acquisition Proposal (as defined below). From and after the date hereof
until the termination of this Agreement, Wyndham shall not, nor shall it
permit any of the Wyndham Subsidiaries to, nor shall it authorize or permit
any officer, director, employee, agent, advisor or representative of, Wyndham
or any of the Wyndham Subsidiaries to, directly or indirectly (i) solicit,
initiate or encourage the submission of, any inquiries, proposals or offers
from any person relating to an Acquisition Proposal, (ii) enter into any
agreement with respect to any Acquisition Proposal, or (iii) enter into,
engage in, or participate or continue in, any discussions or negotiations
regarding, or furnish to any person any information with respect to,
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or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or would reasonably be expected to lead to, any
Acquisition Proposal. Notwithstanding anything to the contrary in this
Agreement, Wyndham may (A) furnish information to, or participate in
discussions or negotiations with, any person or entity that makes or expresses
a bona fide intention to make an unsolicited proposal to acquire Wyndham
and/or any of the Wyndham Subsidiaries pursuant to a merger, consolidation,
share exchange, business combination, tender or exchange offer or other
similar transaction if the Board of Directors of Wyndham determines, based on
the advice of its outside legal counsel (the "Wyndham Legal Counsel"), that
such action is necessary in order to comply with the directors' fiduciary
duties to the stockholders of Wyndham under applicable law; provided, however,
that prior to Wyndham's furnishing such information or participating in such
discussions or negotiations, such person or entity shall have executed a
confidentiality and standstill agreement with Wyndham having terms
substantially similar to those contained in that certain letter agreement
dated January 27, 1997 (the "Patriot Confidentiality Agreement") between
Patriot and Wyndham relating to the provision of Evaluation Material (as
defined in the Patriot Confidentiality Agreement) by Wyndham to Patriot and
(B) comply with Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
respect to an Acquisition Proposal.
(b) As used herein, the term "Acquisition Proposal" shall mean any proposed
or actual (i) merger, consolidation or similar transaction involving Wyndham,
(ii) sale, lease or other disposition, directly or indirectly, by merger,
consolidation, share exchange or otherwise, of any assets of Wyndham or the
Wyndham Subsidiaries representing 15% or more of the consolidated assets of
Wyndham and the Wyndham Subsidiaries, (iii) issue, sale or other disposition
of (including by way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 15% or more of the
votes attached to the outstanding securities of Wyndham, (iv) transaction in
which any person shall acquire beneficial ownership (as such term is defined
in Rule 13d-3 under the Exchange Act), or the right to acquire beneficial
ownership, or any "group" (as such term is defined under the Exchange Act)
shall have been formed which beneficially owns or has the right to acquire
beneficial ownership of, 15% or more of the outstanding shares of Wyndham
Common Stock, (v) recapitalization, restructuring, liquidation, dissolution,
or other similar type of transaction with respect to Wyndham or any of the
Wyndham Subsidiaries, or (vi) transaction which is similar in form, substance
or purpose to any of the foregoing transactions; provided, however, that the
term "Acquisition Proposal" shall not include the Merger and the transactions
contemplated thereby.
(c) Unless the Board of Directors of Wyndham determines in good faith, after
receiving advice of Wyndham Legal Counsel, that doing so would reasonably be
expected to be a breach of the directors' fiduciary duties under applicable
law, Wyndham promptly shall advise Patriot orally and in writing of any
Acquisition Proposal or any inquiry regarding any Acquisition Proposal and the
identity of the person making such Acquisition Proposal or inquiry.
8.2 Conduct of Businesses.
(a) General. Prior to the Effective Time, except as specifically permitted
by this Agreement, unless the other party has consented in writing thereto,
Patriot and Wyndham and, following the Business Combination, BMOC:
(i) Shall use their reasonable best efforts, and shall cause each of
their respective Subsidiaries to use their reasonable best efforts, to
preserve intact their business organizations and goodwill and keep
available the services of their respective officers and material employees;
(ii) Shall, subject to Section 8.1 and this Section 8.2, confer on a
regular basis with one or more representatives of the other to report on
material operational matters and any proposals to engage in material
transactions;
(iii) Shall, subject to Section 8.1 and this Section 8.2, promptly notify
the other of any material emergency or other material change in the
condition (financial or otherwise), business, properties, assets,
liabilities, prospects or the normal course of their businesses or in the
operation of their properties
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(including, in the case of Wyndham and the Wyndham Subsidiaries, properties
under management by Wyndham or any of the Wyndham Subsidiaries), any
material governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated), or the breach
in any material respect of any representation or warranty contained herein;
and
(iv) Shall promptly deliver to the other true and correct copies of any
report, statement or schedule filed by or with respect to it with the SEC
subsequent to the date of this Agreement.
(b) Conduct by Wyndham. Prior to the Effective Time, unless Patriot has
consented in writing thereto or unless otherwise specifically permitted by
this Agreement, but in any event subject to Section 8.2(f), Wyndham:
(i) Shall, and shall cause each Wyndham Subsidiary to, conduct its
operations according to their usual, regular and ordinary course in
substantially the same manner as heretofore conducted, subject to clauses
(ii)-(x) below;
(ii) Shall not, and shall cause each Wyndham Subsidiary not to, acquire,
enter into an option to acquire or exercise an option or contract to
acquire additional real property or interests therein, incur or guarantee
additional indebtedness, encumber assets or commence or guarantee
construction of, or enter into any agreement or commitment to develop or
construct or guarantee, other real estate projects, except that Wyndham may
incur additional indebtedness under its revolving credit facility as in
effect on the date hereof in an aggregate amount of $50,000,000 and except
for those Commitments set forth in Section 6.19 of the Wyndham Disclosure
Letter;
(iii) Shall not amend the Wyndham Certificate or the Wyndham Bylaws, and
shall cause each Wyndham Subsidiary not to amend its charter, bylaws, joint
venture documents, partnership agreements or equivalent documents;
(iv) Shall not (A) issue any shares of its capital stock, effect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction, except pursuant to the Existing Wyndham Options, (B)
grant, confer or award any option, warrant, conversion right or other right
not existing on the date hereof to acquire any shares of its capital stock,
(C) increase any compensation, other than in the ordinary course of
business consistent with past practice, or enter into or amend any
employment agreement with any of its present or future officers or
directors, or (D) adopt any new employee benefit plan (including any stock
option, stock benefit or stock purchase plan) or amend any Wyndham Employee
Benefit plan in any material respect, except for changes which are not more
favorable to participants in such plans;
(v) Shall not (A) declare, set aside or pay any dividend or make any
other distribution or payment with respect to any shares of its capital
stock, or (B) except in connection with the use of shares of capital stock
to pay the exercise price or tax withholding in connection with the Wyndham
Stock Plans, directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of the Wyndham
Subsidiaries, or make any commitment for any such action;
(vi) Except pursuant to Commitments set forth in Section 6.19 of the
Wyndham Disclosure Letter, shall not, and shall not permit any of the
Wyndham Subsidiaries to, sell, lease or otherwise dispose of (A) any
Wyndham Properties or any portion thereof or any of the capital stock of or
partnership or other interests in any of the Wyndham Subsidiaries or (B)
except in the ordinary course of business, any of its other assets which
are material, individually or in the aggregate;
(vii) Except pursuant to Commitments set forth in Section 6.19 of the
Wyndham Disclosure Letter and except to the extent permitted by Section
8.2(f), shall not, and shall not permit any of the Wyndham Subsidiaries to,
make any loans, advances or capital contributions to, or investments in,
any other person (except Wyndham or a wholly-owned Wyndham Subsidiary);
(viii) Shall not, and shall not permit any of the Wyndham Subsidiaries
to, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in, or contemplated by, the
most recent consolidated financial statements (or the notes thereto) of
Wyndham included in the
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Wyndham SEC Reports or incurred in the ordinary course of business
consistent with past practice or pursuant to Commitments set forth in
Section 6.19 of the Wyndham Disclosure Letter or entered into in accordance
with this Agreement;
(ix) Shall not, and shall not permit any of the Wyndham Subsidiaries to,
enter into any Commitment which may result in total payments or liability
by it in excess of $100,000 per year (provided, however, that nothing
contained in this clause (ix) shall permit Wyndham or any Wyndham
Subsidiary to take any action prohibited by the other provisions of this
Section 8.2), other than Commitments for expenses of attorneys, accountants
and investment bankers incurred in connection with the transactions
contemplated by this Agreement; and
(x) Shall not, and shall not permit any of the Wyndham Subsidiaries to,
enter into any material Commitment with any officer, director, consultant
or affiliate of Wyndham or any of the Wyndham Subsidiaries.
(c) Garden Club Transaction. Notwithstanding any other provisions to the
contrary contained in this Agreement, including, without limitation, Section
8.2(b), Wyndham or any Wyndham Subsidiary may enter into an agreement
regarding, and consummate, an acquisition transaction or business combination
involving the businesses and/or assets set forth on Section 8.2(c) of the
Wyndham Disclosure Letter.
(d) Conduct by Patriot and BMOC.
(i) Prior to the Effective Time, unless Wyndham has consented in writing
thereto or unless otherwise specifically permitted by this Agreement, neither
Patriot nor, following consummation of the Business Combination, BMOC, shall
(A) directly or indirectly through a Patriot Subsidiary or a BMOC Subsidiary,
merge or consolidate with, or acquire all or substantially all of the assets,
or beneficial ownership of fifty percent (50%) or more of the outstanding
capital stock or other equity interests, of any person or entity, or (B)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of capital stock of Patriot or BMOC, as the
case may be, except quarterly cash dividends not exceeding $50,000,000 in
addition to (1) dividends, distributions or payments to the extent required in
order for Patriot to maintain Patriot's REIT status under the Code or avoid
the imposition of any income or excise tax, or (2) dividends payable to the
stockholders of CJC, or (C) except in connection with the use of shares of
capital stock (x) to pay the exercise price or tax withholding in connection
with any of its existing stock plans or (y) in connection with the redemption,
exercise, exchange or conversion of partnership units of Patriot OP or BMOC
OP, directly or indirectly redeem, purchase or otherwise acquire any shares of
capital stock of Patriot or BMOC, as the case may be, or capital stock or
equity interests of any of the Patriot Subsidiaries or BMOC Subsidiaries, or
make any commitment for any such action, or (D) issue any shares of Patriot
Stock (or, following consummation of the Business Combination, Paired Shares
of Patriot Stock and BMOC Stock) or grant, confer or award any option,
warrant, conversion right or other right not existing on the date of this
Agreement to acquire any shares of Patriot Stock (or, following consummation
of the Business Combination, Paired Shares of Patriot Stock and BMOC Stock),
except (1) pursuant to the Patriot Stock Plans or other stock option, stock
benefit or stock purchase plan of Patriot or BMOC from time to time in effect,
(2) in connection with any transaction otherwise permitted by the terms of
this Agreement, and (3) pursuant to the offer and sale from time to time of
shares of Patriot Stock (or, following consummation of the Business
Combination, Paired Shares of Patriot Stock and BMOC Stock) or options,
warrants, conversion rights or other rights having an offering price of not
more than $500,000,000 in the aggregate.
(ii) Notwithstanding any other provisions to the contrary contained in this
Agreement, prior to the Effective Time, Patriot, Patriot OP, BMOC and/or BMOC
OP may enter into an agreement regarding, and consummate, an acquisition
transaction or business combination involving the businesses and/or assets set
forth in Section 8.2(d)(ii) of the Patriot Disclosure Letter (A) under the
heading "Sombrero Portfolio" and (B) under the heading "Rock General Account
Unencumbered Assets."
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(iii) The outstanding Indebtedness (as hereinafter defined) of Patriot, the
Patriot Subsidiaries, BMOC and the BMOC Subsidiaries shall not at any time
prior to the Effective Time exceed $1,250,000,000 in the aggregate. For
purposes of this Section 8.2(d)(iii), "Indebtedness" means, with respect to
any person, all obligations of such person for borrowed money plus all
obligations of such person under any purchase money mortgages plus any note or
bond issued by such person. Notwithstanding the foregoing, the outstanding
Indebtedness of any of Patriot, the Patriot Subsidiaries, BMOC or the BMOC
Subsidiaries prior to the Effective Time may exceed $1,250,000,000 in the
aggregate if and to the extent the Interim Transactions Committee (as
hereinafter defined) so approves.
(iv) Except as otherwise provided in this Section 8.2(d), subject to the
provisions of Sections 8.2(e) and 8.2(f) and without limiting any of the other
rights of Patriot set forth herein or otherwise, prior to the Effective Time,
Patriot and the Patriot Subsidiaries may enter into leases with respect to all
or any portion of the Patriot Properties, acquire, lease, enter into an option
to acquire, lease or exercise an option or contract to acquire, or enter into
or invest in a joint venture or otherwise make an investment in, additional
real property, incur additional indebtedness, encumber assets or commence
construction of, or enter into any agreement or commitment to develop or
construct, other real estate projects.
(v) Without the prior written approval of Wyndham, neither Patriot (nor,
following consummation of the Business Combination, BMOC) shall, prior to the
Effective Time, directly or indirectly, through a Patriot Subsidiary or a BMOC
Subsidiary, (i) enter into or participate in active negotiations with any
third party which would reasonably be expected to lead to the acquisition by
Patriot, BMOC, a Patriot Subsidiary or a BMOC Subsidiary, of any other brand
name that would be competitive with Wyndham's brand (a "Competitive Brand"),
or (ii) enter into any agreement with respect to the acquisition by Patriot,
BMOC, a Patriot Subsidiary or a BMOC Subsidiary, of a Competitive Brand.
Notwithstanding the preceding sentence, Patriot, BMOC, a Patriot Subsidiary or
a BMOC Subsidiary, may, without the prior written approval of Wyndham, take
any other actions not inconsistent with the foregoing, including, without
limitation, responding to unsolicited inquiries from third parties concerning
the acquisition by Patriot, BMOC, a Patriot Subsidiary or a BMOC Subsidiary,
of a Competitive Brand, but shall promptly advise Wyndham of any such
unsolicited inquiries.
(e) Liberty Portfolio. Notwithstanding any other provision to the contrary
contained in this Agreement, prior to the Effective Time, Patriot and/or
Patriot OP or any of the Patriot Subsidiaries may make an investment in all or
any portion of the commercial real estate assets set forth in Section 8.2(e)
of the Patriot Disclosure Letter (the "Liberty Portfolio") that does not (A)
exceed $220,000,000 in the aggregate or (B) result in Patriot having to
consolidate the accounts of the Liberty Portfolio within the accounts of
Patriot (a "Liberty Consolidation"). Patriot may make additional investments
in the Liberty Portfolio in excess of $220,000,000 or take any action that
would result in a Liberty Consolidation (an "Additional Liberty Investment")
only in accordance with the following provisions of this Section 8.2(e).
Prior to the Effective Time, Patriot shall promptly notify Wyndham of any
determination by the Board of Directors of Patriot or any Patriot Subsidiary,
or by the Board of Directors of BMOC or any BMOC Subsidiary, which
determination shall require the unanimous approval of the Board of Directors
of Patriot or BMOC, as the case may be, to enter into an agreement,
arrangement or understanding, or take any other action, pursuant to which
Patriot, such Patriot Subsidiary, or BMOC or such BMOC Subsidiary, would, upon
consummation thereof, make an Additional Liberty Investment, which notice
shall include a reasonably detailed description of the proposed Additional
Liberty Investment, and Patriot or such Patriot Subsidiary, or BMOC or such
BMOC Subsidiary, shall not enter into any such agreement, arrangement or
understanding, or take any such other action, at any time prior to the date
which is fifteen business days immediately following the date of such notice
(the "Wyndham Notice Period"), unless Patriot or BMOC, as the case may be, has
received the prior written consent of Wyndham. Upon expiration of the Wyndham
Notice Period, (i) if Wyndham shall not have previously provided to Patriot or
BMOC, as the case may be, written notice of Wyndham's desire to terminate this
Agreement pursuant to Section 10.1(m) (the "Wyndham Termination Notice"),
Patriot or such Patriot Subsidiary, or BMOC or such BMOC' Subsidiary, may
proceed with such Additional Liberty Investment, Wyndham shall be deemed to
have consented thereto for purposes of this Agreement, and this Agreement
shall
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remain in full force and effect, or (ii) if Wyndham shall have previously
provided to Patriot or BMOC, as the case may be, the Wyndham Termination
Notice, the parties shall nevertheless proceed with the Merger in accordance
with and subject to the terms and conditions of this Agreement in the event
that Patriot or BMOC, as the case may be, provides written notice to Wyndham
no later than the tenth business day following the expiration of the Wyndham
Notice Period (the "Patriot Notice Period") to the effect that the Board of
Directors of Patriot or BMOC, as the case may be, has, notwithstanding its
earlier decision, determined not to proceed with the proposed Additional
Liberty Investment. James Carreker and two directors of Wyndham selected by
Wyndham shall have the right to participate in the discussions of the Board of
Directors of Patriot or BMOC, as the case may be, that relate to a proposed
Additional Liberty Investment, provided, however, that such persons shall not
have the right to participate in final deliberations or any vote by the Board
of Directors of Patriot or BMOC, as the case may be, regarding such proposed
Additional Liberty Investment.
(f) Interim Transactions Committee. Promptly following the execution of this
Agreement, Patriot and Wyndham shall constitute and establish a committee
which shall evaluate and consider proposed acquisitions or other transactions
("Transactions") by Patriot or Wyndham or any of their respective Subsidiaries
between the date hereof and the Effective Time (the "Interim Transactions
Committee"). The Interim Transactions Committee shall consist of Paul
Nussbaum, an individual selected by Patriot who is reasonably satisfactory to
Wyndham, and two individuals selected by Wyndham who are reasonably acceptable
to Patriot. The Interim Transactions Committee shall be abolished at the
Effective Time.
Transactions by Patriot or any of the Patriot Subsidiaries involving a
proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) (A) exceeding $100,000,000 individually, or (B) that,
when taken together with all previous Transactions entered into by Patriot or
any of the Patriot Subsidiaries between the date of this Agreement and the
Effective Time, would exceed $100,000,000 (the "Patriot Transactions
Threshold"), shall require the approval of a majority of the members of the
Interim Transactions Committee, in addition to any other approvals that may be
sought by Patriot or required by law; provided, however, that this Section
8.2(f) shall not apply to any of the transactions permitted by Sections
8.2(d)(ii) or 8.2(e); and provided, further, that between the date of the
Business Combination and the Effective Time, neither BMOC nor any of the BMOC
Subsidiaries shall engage in Transactions exceeding the Patriot Transaction
Threshold without the prior approval of Wyndham (provided that for purposes of
this Section 8.2(f), such Transactions by BMOC or any of the BMOC Subsidiaries
shall be included for purposes of computing the Patriot Transactions
Threshold). Notwithstanding Section 8.2(d)(i)(A), Patriot or any of the
Patriot Subsidiaries, or with respect to the following clause (A), BMOC or any
of the BMOC Subsidiaries, may (A) acquire or invest in any hospitality or
related assets involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not exceeding the Patriot
Transactions Threshold, and (B) subject to Section 8.2(j), merge or
consolidate with, or acquire all or substantially all of the assets, or
beneficial ownership of fifty percent (50%) or more of the outstanding capital
stock or other equity interests, of any person or entity, irrespective of the
purchase price involved if such Transaction is first approved by a majority of
the members of the Interim Transactions Committee. Any such Transaction so
approved by the Interim Transaction Committee as provided herein shall be
deemed not to have occurred for purposes of Section 8.2(d)(i) or computing the
Patriot Transactions Threshold or otherwise for purposes of this Section
8.2(f), and any such Transaction not exceeding the Patriot Transactions
Threshold as provided herein shall be deemed not to have occurred for purposes
of Section 8.2(d)(i).
Transactions by Wyndham or any of the Wyndham Subsidiaries involving a
proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) (A) exceeding $50,000,000 individually, or (B) that,
when taken together with all previous Transactions entered into by Wyndham or
any of the Wyndham Subsidiaries between the date of this Agreement and the
Effective Time, would exceed $50,000,000 (the "Wyndham Transactions
Threshold"), shall require the approval of a majority of the members of the
Interim Transactions Committee, in addition to any other approvals that may be
sought by Wyndham or required by law; provided, however, that this Section
8.2(f) shall not apply to any of the transactions permitted by Section 8.2(c).
Notwithstanding Section 8.2(b), Wyndham or any of the Wyndham Subsidiaries may
(A) acquire or invest in
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any non-real estate hospitality assets (including management or franchise
agreements) involving a proposed purchase price (inclusive of any indebtedness
to be assumed in connection therewith) not exceeding the Wyndham Transactions
Threshold, and (B) merge or consolidate with, or acquire all or substantially
all of the assets, or beneficial ownership of fifty percent (50%) or more or
other equity interests, of any person or entity, irrespective of the purchase
price involved if such Transaction is first approved by a majority of the
members of the Interim Transactions Committee. Any such transaction approved
by the Interim Transaction Committee as provided herein shall be deemed not to
have occurred for purposes of Section 8.2(b) or computing the Wyndham
Transactions Threshold or otherwise for purposes of this Section 8.2(f), and
any such Transaction not exceeding the Wyndham Transactions Threshold as
provided herein shall be deemed not to have occurred for purposes of Section
8.2(b).
(g) Offices Relocation. Patriot and Wyndham agree that between the date
hereof and the Effective Time, Patriot and Wyndham shall cooperate with each
other in good faith to arrange for the relocation of the offices of Patriot
and/or Wyndham in a manner mutually satisfactory to the parties.
(h) Organizational Matters. Prior to the Effective Time, Patriot, BMOC and
Wyndham shall cooperate with each other in good faith and use all reasonable
efforts to establish and develop a combined organization, management and
operational structure for Patriot and BMOC, provided that Patriot is
satisfied, in its reasonable judgment after consultation with Wyndham, that
there are no adverse tax or regulatory consequences (except for immaterial
consequences). The parties acknowledge the delivery of a memorandum from
Goodwin, Procter & Hoar llp (the "Structure Memorandum") regarding the
structure of the Merger and the transactions relating thereto, which
memorandum sets forth the structuring plan currently contemplated by Patriot
and Wyndham, and the parties agree to cooperate to implement such plan or find
mutually acceptable alternatives to such plan.
(i) Wyndham Debentures. Prior to the Effective Time, Wyndham shall use all
reasonable efforts to (A) repurchase, redeem or otherwise retire the 10 1/2%
Senior Subordinated Notes Due 2006 (the "Notes") in accordance with the terms
and conditions of the Indenture, dated May 24, 1996, among Wyndham, certain
Wyndham Subsidiaries and Banc One, Columbus, N.A. (the "Indenture") on terms
reasonably satisfactory to Patriot, or (B) take such action, including the
repurchase of Notes, as may be necessary or appropriate to cause the Indenture
to be amended to remove or defease those covenants, agreements and
undertakings selected by Patriot that may be removed or defeased in accordance
with the Indenture on terms reasonably satisfactory to Patriot.
(j) Patriot Change in Line of Business. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, without the
prior approval of the Board of Directors of Wyndham, none of Patriot, BMOC or
their respective Subsidiaries shall enter into any line of business in which
Patriot is not engaged as of the date of this Agreement (a "New Business"),
including, subject to Section 8.2(e), taking any action that would cause the
results of operations of a New Business to be consolidated for financial
reporting purposes with those of Patriot or BMOC; provided, however, that
Patriot shall not be deemed to be engaged in a new line of business by virtue
of any investment in the Liberty Portfolio permitted by Section 8.2(e) or by
virtue of any of the transactions contemplated by Section 8.2(d)(ii).
(k) Business Combination. To the extent that Patriot's consent is required
under the Business Combination Agreement, Patriot shall not consent to the
taking of any action by CJC or BMOC that, if taken by Patriot prior to
consummation of the Business Combination, would be specifically prohibited by
the terms of Section 8.2, unless Patriot is required to give such consent by
law or pursuant to any existing agreements.
8.3 Meetings of Stockholders.
(a) Promptly following consummation of the Business Combination, (i) Patriot
will take all action necessary in accordance with applicable law and its
certificate of incorporation and bylaws to convene a meeting of its
stockholders as promptly as practicable to consider and vote upon the approval
of this Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, the Pairing Agreement Amendment and,
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if required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement, and (ii) Wyndham will take all action necessary in accordance with
applicable law and its certificate of incorporation and bylaws to convene a
meeting of its stockholders as promptly as practicable to consider and vote
upon the approval of this Agreement as ratified by New Patriot pursuant to the
Patriot Ratification Agreement. The proxy statement of Patriot related to its
stockholders' meeting shall contain the recommendation of the Board of
Directors of Patriot that its stockholders approve this Agreement, as ratified
by New Patriot pursuant to the Patriot Ratification Agreement, the Pairing
Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required by applicable law or the rules of the NYSE, the Stock
Purchase Agreement. The proxy statement of Wyndham related to its
stockholders' meeting shall contain the recommendation of the Board of
Directors of Wyndham that its stockholders approve this Agreement as ratified
by New Patriot pursuant to the Patriot Ratification Agreement. Patriot and
Wyndham, subject to and in accordance with applicable law, each shall use
their reasonable best efforts to obtain such approval, including without
limitation, by timely mailing the Proxy Statement (as defined in Section 8.7
hereof) contained in the Form S-4 (as defined in Section 8.7 hereof) to its
stockholders. Patriot and Wyndham shall coordinate and cooperate with each
other and with BMOC with respect to the timing of their respective
stockholders' meetings and shall use their reasonable best efforts to hold
such meetings on the same day and on the same day as the stockholders' meeting
of BMOC. Notwithstanding any of the foregoing, in no event shall any of
Patriot, BMOC or Wyndham be required to hold its stockholders' meeting prior
to September 30, 1997.
(b) Promptly following consummation of the Business Combination, BMOC will
take all action necessary in accordance with applicable law and its
certificate of incorporation and bylaws to convene a meeting of its
stockholders as promptly as practicable to consider the vote upon the approval
of the BMOC Stock Issuance, the BMOC Charter Amendment, the Pairing Agreement
Amendment and, if required by applicable law or the rules of the NYSE, the
Stock Purchase Agreement. The proxy statement of BMOC related to its
stockholders meeting shall contain the recommendation of the Board of
Directors of BMOC that its stockholders approve the BMOC Stock Issuance, the
Pairing Agreement Amendment, the BMOC Charter Amendment and, if stockholder
approval of the Stock Purchase Agreement is required under applicable law or
the rules of the NYSE, the Stock Purchase Agreement, and BMOC shall, subject
to and in accordance with applicable law, use its reasonable best efforts to
obtain such approval, including, without limitation, by timely mailing the
Proxy Statement (as defined in Section 8.7 hereof) contained in the Form S-4
(as defined in Section 8.7 hereof) to its stockholders. BMOC shall coordinate
and cooperate with Patriot and Wyndham with respect to the timing of its
meeting and their respective meetings and shall use its reasonable best
efforts to hold its meeting on the same day as such other meetings.
8.4 Filings; Other Action. Subject to the terms and conditions herein
provided, Wyndham, Patriot and BMOC shall: (a) to the extent required,
promptly make their respective filings and thereafter make any other required
submissions under the HSR Act with respect to the Merger and, if applicable,
the Stock Purchase; (b) use all reasonable best efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Time from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions and any third parties in connection with the execution and
delivery of this Agreement, the Wyndham/BMOC Subscription Agreement and the
other Ancillary Agreements and consummation of the transactions contemplated
by such agreements and (ii) timely making all such filings and timely seeking
all such consents, approvals, permits or authorizations; (c) use all
reasonable best efforts to obtain in writing any consents required from third
parties to effectuate the Merger and the transactions contemplated hereby and
by the Ancillary Agreements in reasonably satisfactory form to Wyndham and
Patriot; and (d) use all reasonable best efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement, the Wyndham/BMOC Subscription
Agreement and the other Ancillary Agreements. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of this Agreement, the Wyndham/BMOC Subscription Agreement or the
other Ancillary Agreements, the proper officers and directors of Patriot, BMOC
and Wyndham shall take all such necessary action.
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8.5 Access to Information.
(a) Upon reasonable notice to the other, each of Patriot and Wyndham shall
(and shall cause their respective Subsidiaries to) afford to the officers,
employees, accountants, counsel and other representatives of the other,
reasonable access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, Commitments and
records and permit such persons to make such inspections as they may
reasonably require and, during such period, each of Patriot and Wyndham and,
upon consummation of the Business combination, BMOC shall (and shall cause its
Subsidiaries to) furnish promptly to the other all information concerning its
business, properties, personnel and accountants as the other may reasonably
request.
(b) All such information shall be deemed "Evaluation Material" as such term
is defined in those certain letter agreements dated January 27, 1997 between
Patriot and Wyndham (the "Confidentiality Agreements"), except as otherwise
provided in such Confidentiality Agreements.
8.6 Publicity. Patriot, Wyndham and BMOC shall consult with each other
before issuing any press release or otherwise making any public statements
with respect to this Agreement or any transaction contemplated hereby and
shall not issue any such press release or make any such public statement
without the prior consent of the other parties, which consent shall not be
unreasonably withheld; provided, however, that a party may, without the prior
consent of the other party, issue such press release or make such public
statement as may be required by law or the applicable rules of any stock
exchange if it has used its reasonable best efforts to consult with the other
party and to obtain such party's consent but has been unable to do so in a
timely manner.
8.7 Proxy Statement; Registration Statement.
(a) As promptly as practicable following the stockholders' meetings of CJC
and BMOC at which the Business Combination will be submitted to the
stockholders of CJC and BMOC for their approval, (i) each of Patriot, Wyndham
and BMOC shall prepare and file with the SEC (with appropriate requests for
confidential treatment, unless the parties hereto otherwise agree) under the
Exchange Act, a joint proxy statement/prospectus and forms of proxies (such
joint proxy statement/prospectus together with any amendments to supplements
thereto, the "Proxy Statement") relating to the stockholder meetings of each
of Patriot, Wyndham and BMOC and the vote of the stockholders of (A) Patriot
and Wyndham, with respect to this Agreement as ratified by New Patriot
pursuant to the Patriot Ratification Agreement, (B) Patriot, with respect to
an amendment to the Pairing Agreement (the "Pairing Agreement Amendment")
pursuant to and in accordance with the terms of the Stock Purchase Agreement,
and (C) BMOC, with respect to the BMOC Stock Issuance, the Pairing Agreement
Amendment and the BMOC Charter Amendment, and (ii) following clearance by the
SEC of the Proxy Statement, Patriot and BMOC shall prepare and file with the
SEC under the Securities Act a registration statement on Form S-4 (such
registration statement, together with any amendments or supplements thereto,
the "Form S-4"), in which the Proxy Statement will be included as a
prospectus, in connection with the registration under the Securities Act of
(A) the Paired Shares of Patriot Stock and BMOC Stock to be distributed to the
stockholders of Wyndham in the Merger, (B) the Paired Shares of Patriot Stock
and BMOC Stock to be issued and sold to the Principal Stockholder pursuant to
the Stock Purchase Agreement, (C) the shares of Unpaired Patriot Stock to be
issued and sold to the Principal Stockholder pursuant to the Stock Purchase
Agreement, (D) the Paired Shares of Patriot Stock and BMOC Stock to be issued
to the Principal Stockholder upon conversion of the shares of Unpaired Patriot
Stock to be issued and sold to the Principal Stockholder pursuant to the Stock
Purchase Agreement, and (E) as contemplated by the Registration Rights
Agreement, the resale of certain Paired Shares of Patriot Stock and BMOC Stock
to be issued in the Merger and pursuant to the Stock Purchase Agreement (the
securities referred to in the foregoing clauses (A)-(E) being referred to
herein collectively as the "Registered Securities"). Patriot and BMOC will
cause the Proxy Statement and the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder, and Wyndham will cause
the Proxy Statement to comply as to form in all material respects with the
applicable provisions of the Exchange Act and the rules and regulations
thereunder. Each of Patriot and BMOC, on the one hand, and Wyndham, on the
other hand, shall furnish all information about itself and its business and
operations and all necessary financial information to the
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other as the other may reasonably request in connection with the preparation
of the Proxy Statement and the Form S-4. Each of Patriot and BMOC shall use
its reasonable best efforts, and Wyndham will cooperate with them, to have the
Form S-4 declared effective by the SEC as promptly as practicable (including
clearing the Proxy Statement with the SEC). Each of Patriot, Wyndham, and BMOC
agrees promptly to correct any information provided by it for use in the Proxy
Statement and the Form S-4 if and to the extent that such information shall
have become false or misleading in any material respect, and each of the
parties hereto further agrees to take all steps necessary to amend or
supplement the Proxy Statement and, in the case of Patriot and BMOC, the Form
S-4, and to cause the Proxy Statement and, in the case of Patriot and BMOC,
the Form S-4, as so amended or supplemented to be filed with the SEC and to be
disseminated to their respective stockholders, in each case as and to the
extent required by applicable federal and state securities laws. Each of
Patriot, Wyndham, and BMOC agrees that the information provided by it for
inclusion in the Proxy Statement or the Form S-4 and each amendment or
supplement thereto, at the time of mailing thereof and at the time of the
respective meetings of stockholders of Patriot, Wyndham, and BMOC, will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of Patriot and BMOC will advise Wyndham, and deliver copies
(if any) to Wyndham, promptly after either receives notice thereof, of any
request by the SEC for amendment of the Proxy Statement or the Form S-4 or
comments thereon and responses thereto or requests by the SEC for additional
information, or notice of the time when the Form S-4 has become effective or
any supplement or amendment has been filed, the issuance of any stop order,
the suspension of the qualification of the Registered Securities issuable in
connection with the Merger or pursuant to the Stock Purchase or of the
Registered Securities for offering or sale in any jurisdiction.
(b) Each of Patriot, Wyndham and BMOC shall use its best efforts to timely
mail the Proxy Statement to its stockholders. It shall be a condition to the
mailing of the Proxy Statement that (i) Patriot shall have received "comfort"
letters from Coopers & Lybrand LLP, independent public accountants for
Wyndham, of the kind contemplated by the Statement of Auditing Standards with
respect to Letters to Underwriters promulgated by the American Institute of
Certified Public Accountants (the "AICPA Statement"), dated as of the date on
which the Form S-4 shall become effective (and Patriot shall also receive such
a letter as of the Effective Time), each addressed to Patriot and BMOC, in
form reasonably satisfactory to Patriot and BMOC, concerning the procedures
undertaken by Coopers & Lybrand LLP with respect to the financial statements
and information of Wyndham and the Wyndham Subsidiaries contained in the Form
S-4 and the other matters contemplated by the AICPA Statement and otherwise
customary in scope and substance for letters delivered by independent public
accountants in connection with transactions such as those contemplated by this
Agreement and (ii) Wyndham shall have received a "comfort" letter from Ernst &
Young LLP, independent public accountants for Patriot and BMOC, of the kind
contemplated by the AICPA Statement, dated as of the date on which the Form S-
4 shall become effective (and Wyndham shall also receive such a letter as of
the Effective Time), each addressed to Wyndham, in form reasonably
satisfactory to Wyndham, concerning the procedures undertaken by Ernst & Young
LLP with respect to the financial statements and information of Patriot and
BMOC and their respective Subsidiaries contained in the Form S-4 and the other
matters contemplated by the AICPA Statement and otherwise customary in scope
and substance for letters delivered by independent public accountants in
connection with transactions such as those contemplated by this Agreement.
8.8 Listing Application. Each of Patriot, Wyndham and BMOC shall cooperate
and promptly prepare and submit to the NYSE all reports, applications and
other documents that may be necessary or desirable to enable all of the Paired
Shares of Patriot Stock and BMOC Stock that will be outstanding or will be
reserved for issuance at the Effective Time to be listed for trading on the
NYSE. Each of Patriot, Wyndham and BMOC shall furnish all information about
itself and its business and operation and all necessary financial information
to the other as the other may reasonably request in connection with the such
NYSE listing process. Each of Patriot, Wyndham and BMOC agrees promptly to
correct any information provided by it for use in the NYSE listing process if
and to the extent that such information shall have become false or misleading
in any material respect. Each of Patriot, Wyndham and BMOC will advise and
deliver copies (if any) to the other parties, promptly after it receives
notice thereof, of any request by the NYSE for amendment of any submitted
materials or comments thereon and responses thereto or requests by the NYSE
for additional information.
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8.9 Further Action. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger and the
transactions contemplated by this Agreement and the Ancillary Agreements. In
connection with the Closing, Wyndham and each Wyndham Subsidiary shall use its
best efforts to deliver to Patriot such deeds, bills of sale, assignments,
certificates, affidavits, indemnities and other agreements and documents as
are reasonably required to effectuate consummation of the transactions
described herein.
8.10 Affiliates of Wyndham.
(a) At least 30 days prior to the Closing Date, Wyndham shall deliver to
Patriot a list of names and addresses of those persons who were, in Wyndham's
reasonable judgment, at the record date for its stockholders' meeting to
approve the Merger, "affiliates" (each such person, an "Affiliate") of Wyndham
within the meaning of Rule 145. Wyndham shall provide Patriot such information
and documents as Patriot shall reasonably request for purposes of reviewing
such list. Wyndham shall use its reasonable best efforts to deliver or cause
to be delivered to Patriot, prior to the Closing Date, from each of the
Affiliates of Wyndham identified in the foregoing list, an Affiliate Letter in
the form attached hereto as Exhibit G. Patriot shall be entitled to place
legends as specified in such Affiliate Letters on the certificates evidencing
any Paired Shares of Patriot Stock and BMOC Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the Paired Shares of
Patriot Stock and BMOC Stock, consistent with the terms of such Affiliate
Letters.
(b) Patriot and BMOC shall each file the reports required to be filed by it
under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Affiliate of Wyndham
may reasonably request, all to the extent required from time to time to enable
such Affiliate to sell Paired Shares of Patriot Stock and BMOC Stock received
by such Affiliate in the Merger without registration under the Securities Act
pursuant to (i) Rule 145(d)(1) or (ii) any successor rule or regulation
hereafter adopted by the SEC.
8.11 Expenses. Subject to the provisions of Section 10.3, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses, except
that (a) the filing fee(s) in connection with the filing of the Form S-4 with
the SEC, (b) the filing fee in connection with the listing of the Paired
Shares of Patriot Stock and BMOC Stock on the NYSE, if any, (c) the expenses
incurred for printing and mailing the Form S-4 and the Proxy Statement, and
(d) the filing fee in connection with the filing(s) under the HSR Act, shall
be shared equally by Wyndham, on the one hand, and Patriot, on the other hand,
and except that nothing contained herein shall limit or otherwise affect any
provision of the Registration Rights Agreement, the Proxy Agreement or the
Stock Purchase Agreement. Subject to the provisions of Section 10.3, all costs
and expenses for professional services rendered in connection with the
transactions contemplated by this Agreement including, but not limited to,
investment banking and legal services, will be paid by each party incurring
such costs and expenses.
8.12 Indemnification.
(a) In the event of any threatened or actual claim, action, suit, proceeding
or investigation, whether civil, criminal or administrative, in which any
person who is now, or has been at any time prior to the date hereof, or who
becomes prior to the Effective Time, a director or officer of Wyndham or any
of the Wyndham Subsidiaries (any such person or entity, an "Indemnified
Party") is, or is threatened to be, made a party based in whole or in part on,
or arising in whole or in part out of, or pertaining to (i) the fact that he
is or was a director (including in his capacity as a member of a committee of
the Board of Directors), officer of Wyndham or any of the Wyndham
Subsidiaries, or is or was serving at the request of Wyndham or any of the
Wyndham Subsidiaries as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (ii)
this Agreement or any of the transactions contemplated hereby, whether in any
case asserted or arising before or after the Effective Time, the parties
hereto agree to cooperate and use their reasonable efforts to defend against
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and respond thereto. It is understood and agreed that Wyndham shall indemnify
and hold harmless, and after the Effective Time Patriot shall indemnify and
hold harmless, as and to the full extent permitted by applicable law, each
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorneys' fees and expenses), judgments, fines
and amounts paid in settlement in connection with any such threatened or
actual claim, action, suit, proceeding or investigation, and in the event of
any such threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time) and that (x)
Wyndham, and Patriot after the Effective Time, shall promptly pay expenses in
advance of the final disposition of any claim, suit, proceeding or
investigation to each Indemnified Party to the fullest extent permitted by
law, and (y) Wyndham, and Patriot after the Effective Time, shall be entitled
to participate therein and, to the extent that Wyndham or Patriot, as the case
may be, so desires, to assume the defense thereof with counsel selected by
Wyndham or Patriot, as the case may be (provided that the Indemnified Party
shall have the right to employ separate counsel but the fees and expenses of
such counsel shall be at the Indemnified Party's expense unless in such claim
or action there is, in the opinion of independent counsel, a conflict
concerning any material issue between the position of Wyndham or Patriot, as
the case may be, and the Indemnified Party, in which case if the Indemnified
Party notifies Wyndham or Patriot, as the case may be, in writing that the
Indemnified Party elects to employ separate counsel at the expense of Wyndham
or Patriot, as the case may be, Wyndham or Patriot, as the case may be, shall
not have the right to assume such defense of such action on behalf of the
Indemnified Party; provided, however, that Wyndham or Patriot, as the case may
be, shall not be required to pay the fees and expenses of more than one
separate counsel for all Indemnified Parties); provided, that neither Patriot
nor Wyndham shall be liable to pay any amounts in any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld). Any Indemnified Party wishing to claim indemnification under this
Section 8.12, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify in writing Wyndham, and after the Effective Time,
Patriot, thereof, provided that the failure to so notify shall not affect the
obligations of Wyndham or Patriot except to the extent such failure to notify
materially prejudices such party. No settlement of any such claim, action,
suit, proceeding or investigation shall be made without the written consent of
the Indemnified Parties with respect thereto unless such Indemnified Party
shall receive a full and unconditional release thereof.
(b) Patriot agrees that all rights to indemnification existing in favor, and
all limitations on the personal liability, of the Indemnified Parties provided
for in the Wyndham Certificate or the Wyndham Bylaws or the charter or bylaws
or similar organizational documents of any of the Wyndham Subsidiaries, or
pursuant to the indemnification agreements set forth on Section 8.12(b) of the
Wyndham Disclosure Letter, as in effect as of the date hereof with respect to
matters occurring prior to the Effective Time shall survive the Merger and
shall continue in full force and effect for a period of not less than six (6)
years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claim (a "Claim") asserted or made within
such period shall continue until the disposition of such Claim. At or prior to
the Effective Time, Patriot shall purchase directors' and officers' liability
insurance coverage for Wyndham's directors and officers in a form reasonably
acceptable to Wyndham which shall provide such directors and officers with
coverage for six (6) years following the Effective Time of not less than the
existing coverage under, and have other terms not substantially less favorable
to the insured persons than, the directors' and officers' liability insurance
coverage presently maintained by Wyndham; provided, however, that in any event
the cost of such policy shall not exceed $350,000 per year (the "Maximum
Amount"); and provided, further, that if such coverage cannot be obtained for
such cost, Patriot will maintain, for such six-year period, the maximum amount
of comparable coverage as shall be available for the Maximum Amount on such
terms.
(c) This Section 8.12 is intended for the irrevocable benefit of, and to
grant third party rights to, the Indemnified Parties (as contemplated by
Section 11.3) and shall be binding on all successors and assigns of Patriot
and Wyndham. Each of the Indemnified Parties shall be entitled to enforce the
covenants contained in this Section 8.12. The provisions for indemnification
contained in this Section 8.12 are not intended to be exclusive and are
without prejudice to any other rights to indemnification or advancement of
funds which any Indemnified Party may otherwise have.
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(d) In the event Patriot or any of its successors or assigns (i)
consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, proper
provision shall be made so that the successors and assigns of Patriot assume
the obligations set forth in this Section 8.12.
8.13 Reorganization.
(a) From and after the date hereof and until the Effective Time, none of
Patriot, BMOC or Wyndham or any of their respective Subsidiaries or other
affiliates shall knowingly take any action, or knowingly fail to take any
action, that would cause the Merger not to qualify as a reorganization within
the meaning of Section 368(a) of the Code.
(b) If and to the extent so requested by Patriot, and subject to receipt of
the consents referred to in Section 8.13(b) of the Wyndham Disclosure Letter,
Wyndham agrees that prior to the Closing Date, all direct or indirect
Subsidiaries of Wyndham holding "real estate assets" within the meaning of
Section 856 of the Code will be liquidated such that Wyndham holds all such
assets, except as otherwise provided on Section 8.13 of the Wyndham Disclosure
Letter.
8.14 Stop Transfer. Wyndham acknowledges and agrees to be bound by and
comply with the provisions of the Proxy Agreement as if a party thereto with
respect to transfers of record ownership of shares of the Wyndham Common
Stock, and agrees to notify the transfer agent of the provisions of the Proxy
Agreement and to request that the transfer agent place a stop transfer order
on the shares that are subject to the provisions of such agreement.
8.15 Brand Conversions. Following the Effective Time, Patriot shall review
its portfolio of hospitality assets to determine which of such assets should
in Patriot's reasonable judgment be converted to the Wyndham brand.
8.16 Ratification by New Patriot. Unless this Agreement shall have been
earlier terminated in accordance with Section 10.1, following consummation of
the Business Combination, the Board of Directors of New Patriot shall ratify,
confirm and adopt this Agreement, the Merger and the other transactions
contemplated hereby; shall, pursuant to and in accordance with the terms of
this Agreement, enter into the Patriot Ratification Agreement following
consummation of the Business Combination; and shall recommend that the holders
of Patriot Stock adopt and approve this Agreement, the Patriot Ratification
Agreement and the Pairing Agreement Amendment at the Patriot's stockholders'
meeting.
8.17 Wyndham's Accumulated and Current Earnings and Profits. At the Closing,
Wyndham shall deliver to Patriot (A) a statement of accumulated and current
E&P of Wyndham (as determined for federal income tax purposes) as of a date
not more than thirty (30) days prior to the Closing Date, together with
evidence of such accumulated and current E&P of Wyndham (as determined for
federal income tax purposes) from Coopers & Lybrand LLP in a form reasonably
satisfactory to Patriot, and (B) a statement of estimated accumulated and
current E&P of Wyndham (as determined for federal income tax purposes) as of
the Closing Date. Wyndham further agrees that prior to the Closing Date, it
shall cause Coopers & Lybrand LLP to agree (i) to deliver to Patriot, prior to
December 25, 1997, a statement of accumulated and current E&P of Wyndham (as
determined for federal income tax purposes) at the Effective Time and (ii)
that Patriot shall be entitled to rely on such statement for purposes of
preparing and filing its federal, state, local and foreign tax returns
required to be filed by it, determining the amount of dividends to be paid to
stockholders and paying any Taxes owed by it.
8.18 Private Letter Ruling. As soon as reasonably practicable after the
execution of this Agreement, Patriot shall request from the Internal Revenue
Service (the "IRS") a private letter ruling (the "Ruling") concerning the
Independent Contractor Issue (as defined below). For purposes hereof, the term
"Independent Contractor Issue" shall mean a conclusion by the IRS that rental
income received by Patriot OP from BMOC
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and/or BMOC OP with respect to real estate owned or leased by Patriot OP (the
"Owned Real Estate") will constitute "rents from real property," as such term
is defined in Section 856(d) of the Code, even though a subsidiary of Patriot
OP provides services to BMOC and/or BMOC OP with respect to the Owned Real
Estate pursuant to management contracts. If the Ruling is obtained prior to
the Effective Time, Patriot, BMOC and Wyndham agree that they shall cooperate
in good faith to restructure the assets of Patriot and BMOC consistent with
the structure described in the Structure Memorandum, subject to such
modifications as to which Patriot, BMOC and Wyndham may hereafter agree. If
the Ruling is not obtained prior to the Effective Time, unless Patriot, BMOC
and Wyndham otherwise agree, Wyndham shall, prior to the Effective Time, sell,
transfer and convey all issued and outstanding shares of capital stock of
Wyndham Management Corporation to BMOC, and at Patriot's election, such sale,
transfer or conveyance shall be qualified under Section 338(h)(10) of the
Code.
8.19 Employee Benefit Matters. Patriot and Wyndham agree that the Surviving
Corporation and/or BMOC after the Effective Time will provide benefit plans to
the employees of Wyndham and the Wyndham Subsidiaries that will be comparable,
in the aggregate, to those provided by Wyndham and the Wyndham Subsidiaries to
their employees immediately prior to the date of this Agreement.
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed to grant any right of continued employment to any present employee
of Wyndham or any Wyndham Subsidiary. Patriot and BMOC agree that, as
reasonably promptly as practicable following the Effective Time, Patriot and
BMOC shall cause to be filed a registration statement on an appropriate form
under the Securities Act relating to the stock option plans of Patriot and
BMOC then in effect and covering the shares issuable upon exercise of the
Assumed Options.
8.20 Stock Purchase Agreement; Purchase and Sale Agreement. Patriot shall
perform its obligations under the Stock Purchase Agreement, and Patriot and
BMOC shall cause each of Patriot OP and BMOC OP, respectively, to perform its
obligations under the Purchase and Sale Agreement, provided that neither the
Principal Stockholder nor the Crow Family Entities are in material breach of
the terms of the Stock Purchase Agreement and Purchase and Sale Agreement,
respectively.
ARTICLE 9.
Conditions
9.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger and the other
transactions contemplated herein shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part by the parties hereto, to the extent permitted
by applicable law:
(a) Stockholder Approvals.
(i) This Agreement, as ratified by New Patriot pursuant to the
Patriot Ratification Agreement, the Pairing Agreement Amendment and, if
required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement, shall have been approved by the requisite vote of the
stockholders of Patriot; and
(ii) This Agreement, as ratified by New Patriot pursuant to the
Patriot Ratification Agreement, shall have been approved by the
requisite vote of the stockholders of Wyndham; and
(iii) The BMOC Stock Issuance, the Pairing Agreement Amendment, the
BMOC Charter Amendment and, if required by applicable law or the rules
of the NYSE, the Stock Purchase Agreement, shall have been approved by
the requisite vote of the stockholders of BMOC.
(b) HSR Act. The waiting period applicable to consummation of the Merger
and, if applicable, the Stock Purchase, under the HSR Act, if applicable,
shall have expired or been terminated.
(c) No Injunctions or Restraints. Neither of the parties hereto shall be
subject to any order, ruling or injunction of a court of competent
jurisdiction which prohibits consummation of the transactions contemplated
by this Agreement. In the event any such order, ruling or injunction shall
have been issued, each party agrees to use its reasonable best efforts to
have any such order, ruling or injunction lifted, stayed or reversed.
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(d) Form S-4. The Form S-4 shall have been declared effective by the SEC
under the Securities Act, and no stop order suspending the effectiveness of
the Form S-4 shall have been issued by the SEC, and no proceedings for that
purpose shall have been initiated or, to the knowledge of Patriot or
Wyndham, threatened by the SEC.
(e) Listing. Patriot and BMOC shall have obtained the approval for the
listing of the Paired Shares of Patriot Stock and BMOC Stock issuable in
the Merger and the Stock Purchase on the NYSE, subject to official notice
of issuance.
(f) Consents, Approvals, Etc. All consents, authorizations, orders and
approvals of (or filings or registrations with) any governmental
commission, board, other regulatory body or third parties required to be
made or obtained by Patriot, BMOC or Wyndham and their respective
subsidiaries and affiliated entities in connection with the execution,
delivery and performance of this Agreement and the Ancillary Agreements
shall have been obtained or made, except where the failure to have obtained
or made any such consent, authorization, order, approval, filing or
registration, could not reasonably be expected to have (i) a Wyndham
Material Adverse Effect or (ii) a material adverse effect on the business,
results of operations or financial condition of New Patriot, the New
Patriot Subsidiaries, BMOC and the BMOC Subsidiaries, taken as a whole (a
"New Patriot Material Adverse Effect"), as the case may be. Notwithstanding
the foregoing provisions of this Section 9.1(f), the amendments, consents,
authorizations, modifications and approvals relating to the matters
referred to in Section 9.3(j) shall not be a condition to the obligations
of Wyndham to effect the Merger.
(g) Business Combination. The Business Combination shall have been
consummated.
(h) Opinion of Counsel. At the Closing, Patriot and Wyndham shall have
received the opinion of Goodwin, Procter & Hoar llp, or other nationally
recognized law firm selected by Patriot, and subject to customary
conditions and qualifications (including reliance, in part, on
representations of Patriot and Wyndham and certain stockholders of
Wyndham), (i) to the effect that (x) the Merger and the Stock Purchase will
be treated for federal income tax purposes as a reorganization under
Section 368(a) of the Code, and (y) prior to the Merger, Patriot and New
Patriot have qualified to be treated as a REIT within the meaning of
Sections 856-860 of the Code including, without limitation, the
requirements of Sections 856 and 857 of the Code, for all applicable tax
years to which Patriot and New Patriot's federal income tax returns are
subject to audit and Patriot and New Patriot are subject to assessment for
taxes reportable therein, and (z) after the Merger, New Patriot will be
organized in conformity with the requirements for qualifications as a REIT
under Sections 856 through 860 of the code, the manner of operation of New
Patriot has enabled it to meet the requirements for qualification as a REIT
under Sections 856 through 860 of the Code as of the Effective Time of the
Merger and the proposed manner of operations of New Patriot after the
Merger will enable New Patriot to qualify as a REIT under Sections 856
through 860 of the Code, and (ii) confirming the prior opinions rendered to
Wyndham in that certain opinion letter of Goodwin, Procter & Hoar llp dated
as of the date hereof.
9.2 Conditions to Obligations of Wyndham to Effect the Merger. The
obligation of Wyndham to effect the Merger shall be subject to the fulfillment
at or prior to the Closing Date of the following conditions, unless waived by
Wyndham:
(a) Representations and Warranties. Except as to such breaches of the
representations and warranties of Patriot made in this Agreement, which,
together with any breaches of the representations and warranties made by
New Patriot and BMOC in the Patriot Ratification Agreement and the BMOC
Ratification Agreement, respectively, individually or in the aggregate,
could not reasonably be expected to have a New Patriot Material Adverse
Effect (disregarding for such purposes all materiality and knowledge
qualifiers contained in the individual representations and warranties of
Patriot, BMOC and New Patriot contained in this Agreement, the BMOC
Ratification Agreement and the Patriot Ratification Agreement,
respectively), each of the representations and warranties of Patriot, BMOC
and New Patriot contained in this Agreement, the BMOC Ratification
Agreement and the Patriot Ratification Agreement, respectively, were true
and correct when made on the dates of this Agreement, the BMOC Ratification
Agreement and the Patriot
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Ratification Agreement, respectively, and each of the representations and
warranties of Patriot, BMOC and New Patriot contained in this Agreement,
the BMOC Ratification Agreement and the Patriot Ratification Agreement,
respectively, shall be true and correct in all material respects as of the
Closing Date (or to the extent a representation or warranty is by its terms
made as of another date, then as of such date) as though made on and as of
the Closing Date, except to the extent that the taking by Patriot of any of
the actions permitted by Sections 8.2(d)(i) and 8.2(d)(iii) (collectively,
the "Patriot Permitted Actions") or consummation of the Business
Combination or any of the transactions permitted by Sections 8.2(d)(ii),
8.2(e) and 8.2(f) (collectively, the "Permitted Transactions") has resulted
in any of such representations and warranties (other than the
representations and warranties contained in Sections 7.1(c), 7.5(iii) or
(iv), 7.7, 7.9, 7.12 and 7.13 of this Agreement to which this exception
shall not apply, unless such inaccuracy relates to any event, matter or
condition disclosed in BMOC's or CJC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the SEC, the preliminary
proxy statement filed by Patriot on or about February 26, 1997 relating to
the Business Combination (the "Business Combination Preliminary Proxy
Statement") or the Patriot Disclosure Letter) being inaccurate as of the
Closing Date, in which case, each such representation and warranty shall
for such purpose be deemed to be qualified by the phrase "except to the
extent that the [Patriot Permitted Action(s)] [Patriot Permitted
Transaction(s)] has caused this representation and warranty to be
inaccurate as stated as of the Closing Date," and a reference to the
applicable Patriot Permitted Action or Patriot Permitted Actions and/or
Patriot Permitted Transaction or Patriot Permitted Transactions shall be
deemed to be substituted for the phrases "[Patriot Permitted Action(s)]"
and "[Patriot Permitted Transaction(s)]" therein. Wyndham shall have
received a certificate, dated the Closing Date, signed on behalf of Patriot
by an authorized officer of Patriot to the foregoing effect.
(b) Performance of Obligations. Patriot and BMOC shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement, the New Patriot Ratification Agreement and the
BMOC Ratification Agreement to be performed or complied with by Patriot or
BMOC, as the case may be, on or prior to the Closing Date.
(c) Absence of Patriot Changes. From the date of this Agreement through
the Closing Date, there shall not have occurred any changes concerning
Patriot or any of the Patriot Subsidiaries that, when combined, without
duplication, with all other changes concerning Patriot, any of the Patriot
Subsidiaries, BMOC, any of the BMOC Subsidiaries, CJC or any of the CJC
Subsidiaries (collectively, "New Patriot Changes"), have had or could be
reasonably likely to have a New Patriot Material Adverse Effect; provided,
however, that consummation of any of the Patriot Permitted Transactions or
the taking of any of the Patriot Permitted Actions shall not, in and of
itself, be deemed a New Patriot Material Adverse Effect. Wyndham shall have
received a certificate, dated the Closing Date, signed on behalf of Patriot
by an authorized officer of Patriot to the foregoing effect.
(d) Absence of BMOC and CJC Changes. From the date of this Agreement
through the Closing Date, there shall not have occurred any changes
concerning BMOC or any of the BMOC Subsidiaries or CJC or any of the CJC
Subsidiaries that, when combined, without duplication, with all other New
Patriot Changes, have had or could be reasonably likely to have a New
Patriot Material Adverse Effect; provided, however, that any event, matter
or condition disclosed in BMOC' or CJC's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 filed with the SEC, the Business
Combination Preliminary Proxy Statement or the Patriot Disclosure Letter
shall not be deemed a New Patriot Material Adverse Effect; and provided,
further, that consummation of any of the Patriot Permitted Transactions or
the taking of any of the Patriot Permitted Actions shall not, in and of
itself, be deemed a New Patriot Material Adverse Effect. Wyndham shall have
received a certificate, dated the Closing Date, signed on behalf of Patriot
and BMOC by an authorized officer of Patriot and BMOC, respectively, to the
foregoing affect.
(e) Stock Purchase Agreement. The Stock Purchase shall have been
consummated.
(f) Registration Rights Agreement. Patriot and BMOC shall have entered
into the Registration Rights Agreement in substantially the form of Exhibit
B.
(g) Composition of Board of Directors. The Boards of Directors of Patriot
and BMOC shall have been fixed and elected in the manner provided in
Sections 4.1 and 4.3 and shall consist of the directors
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designated as provided therein, and the officers of Patriot and BMOC shall
be elected as provided in Sections 4.2 and 4.4 and shall consist of the
officers designated as provided therein.
(h) Ratification Agreements; Wyndham/BMOC Subscription Agreement. Patriot
shall have entered into the Patriot Ratification Agreement and BMOC shall
have entered into the BMOC Ratification Agreement and the Wyndham/BMOC
Subscription Agreement.
(i) Cooperation Agreement. Patriot and BMOC shall have entered into the
Cooperation Agreement in substantially the form of Exhibit A hereto.
9.3 Conditions to Obligation of Patriot to Effect the Merger. The
obligations of Patriot to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions,
unless waived by Patriot:
(a) Representations and Warranties. Except as to such breaches of the
representations and warranties, individually or in the aggregate, which
could not reasonably be expected to have a Wyndham Material Adverse Effect
(disregarding for such purposes all materiality and knowledge qualifiers
contained in the individual representations and warranties of Wyndham
contained in this Agreement), each of the representations and warranties of
Wyndham contained in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date (or to the extent a
representation or warranty is by its terms made as of another date, then as
of such date) as though made on and as of the Closing Date, except to the
extent that the taking by Wyndham of any of the actions permitted by
Sections 8.2(b)(ii) and 8.2(b)(vii) (collectively, the "Wyndham Permitted
Actions") or any of the transactions permitted by Sections 8.2(c) and
8.2(f) (collectively, the "Wyndham Permitted Transactions") has resulted in
any of such representations and warranties being inaccurate as of the
Closing Date, in which case, each such representation and warranty shall
for such purpose be deemed to be qualified by the phrase "except to the
extent that the [Wyndham Permitted Action(s)] [Wyndham Permitted
Transaction(s)] has caused this representation and warranty to be
inaccurate as stated as of the Closing Date," and a reference to the
applicable Wyndham Permitted Action or Wyndham Permitted Action(s) and/or
Wyndham Permitted Transaction or Wyndham Permitted Transactions shall be
deemed to be substituted for the phrases "[Wyndham Permitted Action(s)]"
and "[Wyndham Permitted Transaction(s)]" therein. Patriot shall have
received a certificate, dated the Closing Date, signed on behalf of Wyndham
by an authorized officer of Wyndham to the foregoing effect.
(b) Performance of Obligations. Wyndham shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement, the New Patriot Ratification Agreement and the BMOC Ratification
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c) Absence of Changes. From the date of this Agreement through the
Closing Date, there shall not have occurred any changes concerning Wyndham
or any of the Wyndham Subsidiaries that, when combined with all other
changes, have had or could be reasonably likely to have a Wyndham Material
Adverse Effect, and Patriot shall have received a certificate, dated the
Closing Date, signed on behalf of Wyndham by an authorized officer of
Wyndham to the foregoing effect; provided, however, that consummation of
the transaction permitted by Section 8.2(c) shall not, in and of itself, be
deemed a Wyndham Material Adverse Effect.
(d) Purchase and Sale Agreement. The closing of the transactions
contemplated by the Purchase and Sale Agreement shall have become effective
subject only to the Merger becoming effective at the Effective Time, except
that such consummation shall not be a condition to Patriot's obligations if
Patriot is in material breach of the terms of the Purchase and Sale
Agreement.
(e) Stock Purchase Agreement. The Stock Purchase shall have been
consummated, except that such effectiveness shall not be a condition to
Patriot's obligations if Patriot is in material breach of the terms of the
Stock Purchase Agreement.
(f) Restructuring of Wyndham Assets. Wyndham shall have completed the
restructuring of certain assets of Wyndham and/or Wyndham Subsidiaries as
described in Section 8.13(b) hereof, and shall have obtained all necessary
and required waivers in connection therewith (or waivers thereof).
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(g) Ratification Agreements. Wyndham shall have entered into the Patriot
Ratification Agreement and the BMOC Ratification Agreement.
(h) Cooperation Agreement. Wyndham shall have provided to Patriot, within
ten (10) business days following the date on which Patriot and BMOC execute
and deliver the Cooperation Agreement in substantially the form of Exhibit
A hereto, written confirmation of the acknowledgment and acceptance by
Wyndham of such execution and delivery, provided that Patriot shall have
provided to Wyndham written notice of such execution and delivery at least
eleven (11) business days prior to the Closing Date.
(i) Wyndham Debentures. Wyndham shall have (A) repurchased, redeemed or
otherwise retired the Notes in accordance with the terms and conditions of
the Indenture on terms reasonably satisfactory to Patriot, or (B) caused
the Indenture to be amended to remove or defease those covenants,
agreements and undertakings selected by Patriot that may be removed or
defeased in accordance with the Indenture, on terms reasonably satisfactory
to Patriot.
(j) Anatole and Hospitality Properties Trust. Wyndham shall have received
to Patriot's satisfaction (A) all amendments, consents, authorizations,
modifications and approvals summarized in Sections A and C of Schedule II
of the Purchase and Sale Agreement and (B) such amendments, consents,
authorizations, modifications and approvals required under any lease or
related management contract of a Wyndham Property or a hotel property
leased or managed by a Wyndham Affiliate owned by Hospitality Properties
Trust or an Affiliate thereof to the transactions contemplated by this
Agreement.
ARTICLE 10.
Termination; Amendment; Waiver
10.1 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time, whether before or after approval of matters
presented in connection with the Merger by the stockholders of the Wyndham and
Patriot:
(a) by mutual written consent of Patriot and Wyndham; or
(b) by either Patriot or Wyndham, if any United States federal or state
court of competent jurisdiction or other governmental entity shall have
issued a final order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger or
the BMOC Stock Issuance or the Purchase and Sale and such order, decree,
ruling or other action shall have become final and nonappealable, provided
that the party seeking to terminate shall have used its best efforts to
appeal such order, decree, ruling or other action; or
(c) by either Patriot or Wyndham, if the Merger shall not have been
consummated on or before December 7, 1997 (other than due to the failure of
the party seeking to terminate this Agreement to perform its obligations
under this Agreement required to be performed at or prior to the Effective
Time); or
(d) by either Patriot or Wyndham if the Business Combination shall not
have been consummated on or before September 1, 1997 (other than due to the
failure of the party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed at or prior to
the Effective Time or, in the case of Patriot, its obligations under the
Business Combination Agreement required to be performed on or prior to
September 1, 1997); or
(e) by either Patriot or Wyndham, if any required approval of the
stockholders of Patriot, BMOC or Wyndham that is a condition to the
obligations of Patriot or Wyndham under Section 9.1 shall not have been
obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of stockholders or at any adjournment thereof;
or
(f) by either Patriot or Wyndham, if (X) Congress shall have enacted, or
proposed the enactment of, legislation or any bill having the effect of (A)
eliminating the "grandfathered" status of Patriot under Section 269B(a)(3)
of the Code by virtue of Section 136(c)(3) of the Deficit Reduction Act of
1984, or (B) causing the Merger and the Stock Purchase to fail to be
treated for federal income tax purposes as a
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reorganization under Section 368(a) of the Code, or otherwise eliminating
the treatment of the Merger and the Stock Purchase for federal income tax
purposes as a reorganization under Section 368(a) of the Code, or (Y)
Congress shall have enacted legislation or any bill having the effect of
causing Wyndham to recognize gain as a result of the Merger; or
(g) by Patriot, if Wyndham shall have (i) withdrawn, modified or amended
in any respect adverse to Patriot its approval or recommendation of this
Agreement or any of the transactions contemplated herein, (ii) failed to
include such recommendation in the Proxy Statement, (iii) recommended any
Acquisition Proposal from a person other than Patriot or any of its
Affiliates, (iv) publicly expressed no opinion and remained neutral toward
any Acquisition Proposal, or (v) resolved to do any of the foregoing,
provided that, in any such case, Wyndham shall within five (5) business
days after demand by Patriot, deposit the Section 10.3(a)(i) Amount (as
hereinafter defined) with the escrow agent to be distributed in accordance
with Section 10.4; or
(h) by Wyndham, if, notwithstanding the provisions of Section 8.1, the
Board of Directors of Wyndham determines in good faith, after receiving
advice of Wyndham Legal Counsel, that such action is necessary in order for
the Board of Directors of Wyndham to comply with the directors' fiduciary
duties to stockholders under applicable law and the Board of Directors of
Wyndham authorizes or desires to authorize Wyndham to execute an agreement
(a "Superior Proposal Agreement") providing for a Superior Proposal (as
hereinafter defined), provided that Wyndham has, prior to the termination
of this Agreement and/or the execution of such Superior Proposal Agreement,
deposited the Section 10.3(a)(i) Amount with the escrow agent to be
distributed in accordance with Section 10.4. For purposes of this
Agreement, a "Superior Proposal" means any bona fide Acquisition Proposal,
the terms of which the Board of Directors of Wyndham determines in its good
faith judgment, after receiving advice from a financial advisor of national
standing, to be more favorable to Wyndham's stockholders than the Merger;
or
(i) by Wyndham, if (A) Patriot has failed to perform in any material
respect any of its obligations required to be performed by it under this
Agreement, the Patriot Ratification Agreement or the Stock Purchase
Agreement and such failure continues for more than 30 days after notice
unless failure to so perform has been caused by or results from a breach of
this Agreement by Wyndham, or (B) BMOC has failed to perform in any
material respect any of its obligations required to be performed by it
under the Wyndham/BMOC Subscription Agreement or the BMOC Ratification
Agreement and such failure continues for more than 30 days after notice
unless failure to so perform has been caused by or results from a breach of
the Wyndham/BMOC Subscription Agreement by Wyndham; or
(j) by Wyndham, if the (A) Board of Directors of New Patriot fails to
ratify, confirm and adopt this Agreement, the Patriot Ratification
Agreement and the other transactions contemplated hereby on or prior to the
twentieth business day following consummation of the Business Combination
(the "Business Combination Date"), or in the event that New Patriot shall
not have entered into the New Patriot Ratification Agreement on or prior to
such twentieth business day, or (B) the Board of Directors of BMOC fails to
ratify, confirm and adopt this Agreement, the BMOC Ratification Agreement
and the other transactions contemplated hereby on or prior to the twentieth
business day following the Business Combination Date, or in the event that
BMOC shall not have entered into the BMOC Ratification Agreement on or
prior to such twentieth business day; or
(k) by Patriot, if (A) Wyndham shall have failed to perform in any
material respect any of its obligations required to be performed by it
under this Agreement and such failure continues for more than 30 days after
notice unless failure to so perform has been caused by or results from a
breach of this Agreement by Patriot, (B) if Wyndham has failed to perform
in any material respect any of its obligations required to be performed by
it under the Wyndham/BMOC Subscription Agreement and such failure continues
for more than 30 days after notice unless failure to so perform has been
caused by or results from a breach of the Wyndham Subscription Agreement by
BMOC, or (C) if Wyndham shall not have entered into the Patriot
Ratification Agreement or the BMOC Ratification Agreement on or prior to
the twentieth business day following the Business Combination Date; or
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(l) by Wyndham, in accordance with and subject to Section 5.2(a), if the
Average Closing Price of a Paired Share of Patriot Stock and BMOC Stock is
less than $40.21 (as may be adjusted pursuant to Section 5.2(a)); or
(m) by Wyndham, if (i) Wyndham has provided written notice to Patriot of
its desire to terminate this Agreement upon the expiration of the Wyndham
Notice Period, and (ii) Patriot has not provided written notice to Wyndham
prior to the expiration of the Patriot Notice Period to the effect that the
Board of Directors of Patriot has, notwithstanding its earlier decision,
determined not to proceed with an Additional Liberty Investment, in each
case in accordance with the terms of Section 8.2(e).
(n) by Patriot or Wyndham, if the Stock Purchase Agreement has been
terminated pursuant to Section 1.1(a) or Section 5.7(a)(vi) thereof.
10.2 Effect of Termination. In the event of termination of this Agreement by
either Wyndham or Patriot as provided in Section 10.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation
on the part of Patriot or Wyndham, other than the provisions of Section
8.5(b), this Section 10.2, Sections 8.11, 10.3 and 11.4 and the last sentence
of Section 11.3. Nothing contained in this Section 10.2 shall relieve any
party for any willful breach of the representations, warranties, covenants or
agreements set forth in this Agreement.
10.3 Termination Fees and Expenses.
(a) As a condition to the willingness of Patriot and Wyndham to enter into
this Agreement and to compensate Patriot and Wyndham for entering into this
Agreement, taking action to consummate the transactions hereunder and
incurring the costs and expense related thereto, each of Patriot and Wyndham
agree as follows:
(i) Wyndham shall deposit with the escrow agent an amount in cash equal
to $30,000,000 (the "Section 10.3(a)(i) Amount") in accordance with and
subject to the provisions of Section 10.1(g) and Section 10.1(h).
(ii) If Patriot or Wyndham shall have terminated this Agreement pursuant
to Section 10.1(d), then Patriot shall pay to Wyndham an amount in cash
equal to $25,000,000, provided that in the case of such termination by
Wyndham, such amount shall be payable only if Wyndham is not in material
breach at the time of termination of this Agreement (which breach has
continued for more than 30 days after notice or cannot reasonably be
expected to be cured within such period (unless such breach was caused by
or resulted from a breach of this Agreement by Patriot)).
(iii) If Wyndham shall have terminated this Agreement pursuant to Section
10.1(j), then Patriot shall pay to Wyndham an amount in cash equal to
$50,000,000.
(iv) If (A) Patriot or Wyndham shall have terminated this Agreement
pursuant to Section 10.1(e) due to the failure of any required approval of
the stockholders of Patriot or BMOC, or (B) Wyndham shall have terminated
this Agreement pursuant to Section 10.1(m), then Patriot shall pay Wyndham
an amount in cash equal to Wyndham's documented out-of-pocket fees and
expenses ("Expenses") actually incurred by it prior to such termination in
connection with this Agreement and the transactions contemplated hereby,
including, without limitation, fees and expenses of accountants, attorneys
and investment bankers; provided that the aggregate amount of Expenses
required to be reimbursed pursuant to this Section 10.3(a)(iv) shall not
exceed $7,000,000, and provided, further, that in the case of such a
termination by Wyndham, such amount shall be payable only if Wyndham is not
in material breach at the time of termination of this Agreement (which
breach has continued for more than 30 days after notice or cannot
reasonably be expected to be cured within such period (unless such breach
was caused by or resulted from a breach of this Agreement by Patriot)).
(b) Any payment required to be paid by Patriot to Wyndham pursuant to this
Section 10.3 shall be payable (by wire transfer of immediately available funds
to an account designated by Wyndham) contemporaneously with, and as a
condition to the effectiveness of, a termination by Patriot, and, in the case
of a termination by Wyndham, within five (5) business days after demand by
Wyndham.
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10.4 Payment of Termination Amount or Expenses.
(a) In the event that Wyndham is obligated to deposit with the escrow agent
the Section 10.3(a)(i) Amount as provided in Sections 10.1(g) and 10.1(h), the
escrow agent shall pay to Patriot from the Section 10.3(a)(i) Amount deposited
into escrow in accordance with the next sentence, an amount equal to the
lesser of (i) the Section 10.3(a)(i) Amount and (ii) the sum of (x) the
maximum amount that can be paid to Patriot without causing Patriot to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as
if the payment of such amount did not constitute income described in Sections
856(c)(2)(A)-(H) or 856(c)(3)(A)-(i) of the Code ("Qualifying Income"), as
determined by Patriot's certified public accountants, plus (y) in the event
Patriot receives either (a) a letter from Patriot's counsel indicating that
Patriot has received a ruling from the IRS described in Section 10.4(b)(ii) or
(b) an opinion from Patriot's counsel as described in Section 10.4(b)(ii), an
amount equal to the Section 10.3(a)(i) Amount less the amount payable under
clause (x) above. To secure Wyndham's obligation to pay these amounts, Wyndham
shall deposit into escrow an amount in cash equal to the Section 10.3(a)(i)
Amount with an escrow agent selected by Patriot and on such terms (subject to
Section 10.4(b) as shall be agreed upon by Patriot and the escrow agent.
(b) The escrow agreement shall provide that the Section 10.3(a)(i) Amount in
escrow or any portion thereof shall not be released to Patriot unless the
escrow agent receives any one or combination of the following: (i) a letter
from Patriot's certified public accountants indicating the maximum amount that
can be paid by the escrow agent to Patriot without causing Patriot to fail to
meet the requirements of Sections 856(c)(2) and (3) of the Code determined as
if the payment of such amount did not constitute Qualifying Income or a
subsequent letter from Patriot's accountants revising that amount, in which
case the escrow agent shall release such amount to Patriot, or (ii) a letter
from Patriot's counsel indicating that Patriot received a ruling from the IRS
holding that the receipt by Patriot of the Section 10.3(a)(i) Amount would
either constitute Qualifying Income or would be excluded from gross income
within the meaning of Sections 856(c)(2) and (3) of the Code (or
alternatively, Patriot's legal counsel has rendered a legal opinion to Patriot
to the effect that the receipt by Patriot of the Section 10.3(a)(i) Amount
would either constitute Qualifying Income or would be excluded from gross
income within the meaning of Sections 856(c)(2) and (3) of the Code), in which
case the escrow agent shall release the remainder of the Section 10.3(a)(i)
Amount to Patriot. Wyndham agrees to amend this Section 10.4 at the request of
Patriot as may reasonably be necessary (and without substantial cost or burden
to Wyndham) in order to (x) maximize the portion of the Section 10.3(a)(i)
Amount that may be distributed to Patriot hereunder without causing Patriot to
fail to meet the requirements of Sections 856(c)(2) and (3) of the Code, (y)
improve Patriot's chances of securing a favorable ruling described in this
Section 10.4(b) or (z) assist Patriot in obtaining a favorable legal opinion
from its counsel as described in this Section 10.4(b); provided that Patriot's
legal counsel has rendered a legal opinion to Patriot to the effect that such
amendment would not cause Patriot to fail to meet the requirements of Section
856(c)(2) or (3) of the Code. The escrow agreement shall also provide that any
portion of the Section 10.3(a)(i) Amount held in escrow for fifteen years
shall be released by the escrow agent to Wyndham. Wyndham shall not be a party
to such escrow agreement and shall not bear any cost of or have liability
resulting from the escrow agreement.
(c) Notwithstanding anything to the contrary set forth in this Agreement, in
the event Wyndham has not deposited the Section 10.3(a)(i) Amount into escrow
in accordance with Section 10.4 when obligated to do so and Patriot is
required to file suit to seek all or a portion of the Section 10.3(a)(i)
Amount, it shall be entitled to all expenses, including attorneys' fees and
expenses, which it has incurred in enforcing its rights hereunder; provided
that payment of such expenses shall be subject to the limitations of Section
10.4(a) (determined as if such expenses were included in the Section
10.3(a)(i) Amount).
10.5 Extension; Waiver. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in this Agreement or in any document delivered
pursuant to this Agreement or (c) subject to the first sentence of Section
11.5, waive compliance with any of the agreements or conditions contained in
this Agreement. Any agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party
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to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
ARTICLE 11.
General Provisions
11.1 Nonsurvival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall not survive the Merger,
provided, however, that the agreements contained in Article 5, the last
sentences of Sections 8.4, 8.16 and 8.17, and Sections 8.10, 8.12, 8.15, 8.17,
8.18 and 8.19 and this Article 11 shall survive the Merger.
11.2 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
If to Patriot: Patriot American Hospitality, Inc.
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C.
If to Wyndham: Wyndham Hotel Corporation
2001 Bryan Street
Suite 2300
Dallas, TX 75201
Attn: James D. Carreker
With copies to: Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 2200
Dallas, TX 75201
Attn: M. Charles Jennings, Esq.
and:
Daniel A. Decker
Chairman, Special Committee of the Board
of Directors of Wyndham Hotel Corporation
2200 Ross Avenue
Suite 4200 West
Dallas, TX 75201
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
11.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned prior to the
Closing by any of the parties hereto (whether by operation of
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law or otherwise) without the prior written consent of the other parties.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement
to the contrary, except for the provisions of Article 5 and Sections 8.10,
8.12 (including for the benefit of the Indemnified Parties) and 8.13, nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement.
11.4 Entire Agreement. This Agreement, the Exhibits, the Wyndham Disclosure
Letter and the Patriot Disclosure Letter and any documents expressly
identified in this Agreement as having been delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto except that the
Confidentiality Agreements shall remain in effect and shall be binding upon
Patriot and Wyndham in accordance with their respective terms. No addition to
or modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
11.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by the
stockholders of Wyndham, Patriot and BMOC, but after any such stockholder
approval, no amendment shall be made which by law requires the further
approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
11.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of Wyndham, Patriot and BMOC hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
11.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
11.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
11.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
11.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
11.11 Incorporation. The Wyndham Disclosure Letter and the Patriot
Disclosure Letter and all Exhibits and Schedules attached hereto and thereto
and referred to herein and therein are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
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11.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions thereof in
any Delaware Court, this being in addition to any other remedy to which they
are entitled at law or in equity. Any requirements for the securing or posting
of any bond with respect to such remedy are hereby waived by each of the
parties hereto.
11.14 Certain Definitions.
(a) As used in this Agreement, the word "Subsidiary" or "Subsidiaries"
when used with respect to any party means any corporation, partnership,
joint venture, business trust or other entity, of which such party directly
or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions
with respect to such corporation or other organization or a majority of the
economic interest in such entity.
(b) As used in this Agreement, the word "person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust,
a limited liability company, any unincorporated organization or any other
entity.
(c) As used in this Agreement, the word "affiliate" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
(d) As used in this Agreement, the phrase "transactions contemplated by
this Agreement" shall include without limitation, each act and transaction
to be performed or completed under this Agreement or any of the Ancillary
Agreements by any party hereto or thereto.
11.15 Schedules. Any fact or item disclosed in one section of any Disclosure
Letter or schedule hereto ("Schedule") shall be deemed to be disclosed with
respect to any other relevant section of such Disclosure Letter or Schedule,
whether or not an explicit cross-reference appears.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: Wyndham Hotel Corporation
/s/ Carla S. Moreland /s/ James D. Carreker
By: _________________________________ By: _________________________________
Name:Carla S. Moreland Name:James D. Carreker
Title:Vice President--General Title:President
Counsel and Secretary
ATTEST: Patriot American Hospitality, Inc.
/s/ Rex E. Stewart /s/ Paul A. Nussbaum
By: _________________________________ By: _________________________________
Name:Rex E. Stewart Name:Paul A. Nussbaum
Title:Chief Financial Officer Title:Chairman and
Chief Executive Officer
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AMENDMENT NO. 1
TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 (this "Amendment") dated November 3, 1997, to the Agreement
and Plan of Merger (the "Merger Agreement") dated as of April 14, 1997 between
Patriot American Hospitality, Inc., a Virginia corporation ("Old Patriot
REIT"), and Wyndham Hotel Corporation. All capitalized terms used in this
Amendment and not otherwise defined herein shall have the meanings set forth
in the Merger Agreement.
WHEREAS, on July 24, 1997, Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot REIT") and successor by merger to Old Patriot REIT, and
Wyndham entered into the Patriot Ratification Agreement, and Patriot American
Hospitality Operating Company ("Patriot Operating Company"), Patriot REIT,
Wyndham and the Principal Stockholder entered into the BMOC Ratification
Agreement;
WHEREAS, pursuant to the BMOC Ratification Agreement, Patriot Operating
Company made certain representations and warranties to Wyndham and the
Principal Stockholder and entered into certain covenants and agreements with
New Patriot, Wyndham and the Principal Stockholder in order to effectuate the
Merger and the transactions contemplated thereby and to carry out the terms of
the Merger Agreement and the transactions contemplated thereby;
WHEREAS, by virtue of the fact that Patriot Operating Company has entered
into the BMOC Ratification Agreement, Patriot REIT, Wyndham and Patriot
Operating Company desire to add Patriot Operating Company as a party to the
Merger Agreement; and
WHEREAS, the parties desire to amend the Merger Agreement in certain
respects, subject to the terms and conditions, covenants and agreements set
forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. The list of Exhibits to the Merger Agreement, which immediately
follows the table of contents of the Merger Agreement, is hereby amended to
add the following exhibits:
"EXHIBIT H--Form of Amended and Restated Certificate of Incorporation
of New Patriot
EXHIBIT I--Form of Amended and Restated Certificate of
Incorporation of BMOC"
2. Section 3.1 of Article 3 of the Merger Agreement is hereby deleted in
its entirety and replaced with the following:
"3.1 Charter. At the meeting of stockholders of Patriot to be held
pursuant to Section 8.1(a) of this Agreement, a proposal to amend and
restate the Amended and Restated Certification of New Patriot (the
"Patriot Certificate") to read in its entirety substantially in the
form set forth in Exhibit H hereto (the "New Patriot Charter
Amendment") shall be submitted to the stockholders of New Patriot for
their approval. If such approval is obtained, an Amended and Restated
Certificate of Incorporation effecting such amendment and restatement
shall be executed, acknowledged and filed with the Secretary State of
the State of Delaware in accordance with the DGCL prior to the filing
of the Certificate of Merger. The Amended and Restated Certificate of
Incorporation of New Patriot, as amended, in effect at the Effective
Time shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with applicable law (the
"Surviving Corporation Certificate")."
3. Sections 4.1(a), 4.1(e), 4.3(a) and 4.3(e) of Article 4 of the Merger
Agreement are hereby amended by replacing all references to the term "Crow
Family Entities" contained in such sections with the term "Principal
Stockholder."
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4. Section 4.5 of Article 4 of the Merger Agreement is hereby amended by
deleting clause (ii) thereof in its entirety and replacing it with the
following:
"(ii) the Amended and Restated Certificate of Incorporation of BMOC
shall be amended and restated to read in its entirety substantially in
the form set forth in Exhibit I hereto (the "BMOC Charter Amendment")."
5. Section 5.4(a) of Article 5 of the Merger Agreement is hereby amended
by replacing the words "As of" as they first appear at the beginning of the
first sentence of said section with the words "No later than the close of
business on the third business day next following."
6. Section 8.3(a) of Article 8 of the Merger Agreement is hereby amended
by deleting clause (i) contained in the first sentence of Section 8.3(a) in
its entirety and replacing it with the following:
"(i) Patriot will take all action necessary in accordance with
applicable law and its certificate of incorporation and bylaws to
convene a meeting of its stockholders as promptly as practicable to
consider and vote upon the approval of this Agreement, as ratified by
New Patriot pursuant to the Patriot Ratification Agreement, the New
Patriot Charter Amendment, the Pairing Agreement Amendment and, if
required by applicable law or the rules of the NYSE, the Stock Purchase
Agreement, and"
7. The second sentence of Section 8.3(a) of Article 8 of the Merger
Agreement is hereby deleted in its entirety and replaced with the following
sentence:
"The proxy statement of Patriot related to its stockholders' meeting
shall contain the recommendation of the Board of Directors of Patriot
that its stockholders approve this Agreement, as ratified by New
Patriot pursuant to the Patriot Ratification Agreement, the Pairing
Agreement Amendment, the New Patriot Charter Amendment and, if
stockholder approval of the Stock Purchase Agreement is required by
applicable law or the rules of the NYSE, the Stock Purchase Agreement."
8. Section 8.7(a) of Article 8 of the Merger Agreement is hereby amended
by deleting clause (B) contained in clause (i) of Section 8.7(a) and
replacing it with the following:
"(B) Patriot, with respect to the New Patriot Charter Amendment and
an amendment to the Pairing Agreement (the "Pairing Agreement
Amendment") pursuant to and in accordance with the terms of the Stock
Purchase Agreement, and"
9. Section 9.1(a)(i) of Article 9 of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"This Agreement, as ratified by New Patriot pursuant to the Patriot
Ratification Agreement, the New Patriot Charter Amendment, the Pairing
Agreement Amendment and, if required by applicable law or the rules of
the NYSE, the Stock Purchase Agreement, shall have been approved by the
requisite vote of the stockholders of Patriot; and"
10. Section 10.1(c) of Article 10 of the Merger Agreement is hereby
amended by replacing the reference to "December 7, 1997" contained in such
section with "December 16, 1997."
11. Except as expressly provided herein, the Merger Agreement shall
remain in full force and effect.
12. Nothing contained in this Amendment shall affect the rights and
obligations of any of the parties to the Patriot Ratification Agreement or
the BMOC Ratification Agreement.
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IN WITNESS WHEREOF, the parties have executed this Amendment and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST: Patriot American Hospitality, Inc.
/s/ Shelby Powell /s/ Rex E. Stewart
By: _________________________________ By: _________________________________
Name:Shelby Powell Name:Rex E. Stewart
Title: Executive Vice President
and Chief Financial Officer
Patriot American Hospitality
Operating Company
ATTEST:
/s/ Shelby Powell /s/ Rex E. Stewart
By: _________________________________ By: _________________________________
Name:Shelby Powell Name:Rex E. Stewart
Title: Executive Vice President
and Chief Financial Officer
ATTEST: Wyndham Hotel Corporation
/s/ Carla S. Moreland /s/ Anne L. Raymond
By: _________________________________ By: _________________________________
Name:Carla S. Moreland Name:Anne L. Raymond
Title: Executive Vice President
and Chief Financial Officer
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ANNEX B
RATIFICATION AGREEMENT
This RATIFICATION AGREEMENT (this "Agreement"), is made and entered into as
of July 24, 1997 between Patriot American Hospitality, Inc., a Delaware
corporation which operates as a real estate investment trust ("New Patriot"),
and Wyndham Hotel Corporation, a Delaware corporation ("Wyndham").
RECITALS
WHEREAS, Patriot American Hospitality, Inc., a Virginia corporation and the
predecessor by merger to New Patriot ("Patriot"), and Wyndham entered into an
Agreement and Plan of Merger, dated as of April 14, 1997 (the "Merger
Agreement"), pursuant to which Wyndham agreed to merge with and into Patriot
(the "Merger");
WHEREAS, New Patriot (the successor by merger to Patriot and formerly named
"California Jockey Club"), Patriot and Patriot American Hospitality Operating
Company, a Delaware corporation and formerly known as Bay Meadows Operating
Company ("Patriot Operating Company"), entered into an Agreement and Plan of
Merger, dated as of February 24, 1997 (the "Business Combination Agreement"),
pursuant to which Patriot, New Patriot and BMOC agreed to effect a business
combination among Patriot, New Patriot and BMOC (the "Business Combination");
WHEREAS, the Business Combination has been consummated, and as a result
thereof Patriot has merged with and into New Patriot, with New Patriot being
the surviving company in the Merger;
WHEREAS, as a result of the Business Combination, New Patriot has succeeded
to the rights and obligations of Patriot under the Merger Agreement;
WHEREAS, the Merger Agreement contemplates that New Patriot will execute and
deliver this Agreement pursuant to which New Patriot will expressly agree with
Wyndham to ratify and approve the Merger, the Merger Agreement and certain
Ancillary Agreements, and to perform the covenants and agreements of Patriot
thereunder;
WHEREAS, the boards of directors of New Patriot, Wyndham and Patriot
Operating Company have each determined that the Merger between New Patriot and
Wyndham, in which the outstanding shares of common stock, par value $.01 per
share, of Wyndham (the "Wyndham Stock") will be converted into cash and/or
shares of common stock, par value $.01 per share, of New Patriot (the "New
Patriot Stock") and shares of common stock, par value $.01 per share, of
Patriot Operating Company (the "Patriot Operating Company Stock") that are
paired and transferrable and traded only in combination as a single unit (the
"Paired Shares") on the New York Stock Exchange pursuant to the Pairing
Agreement dated as of February 17, 1983 between New Patriot and Patriot
Operating Company, as amended (the "Pairing Agreement"), is in the best
interests of their respective companies and stockholders and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the transactions
provided for in the Merger Agreement and herein upon the terms and subject to
the conditions set forth herein;
WHEREAS, it is intended that the Stock Purchase by Patriot and the Merger
provided for herein be treated as an integrated transaction that, for federal
income tax purposes, qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
and pursuant to which the consideration received by all of the stockholders of
Wyndham shall be tax-free to such stockholders to the extent such
consideration consists of Patriot Unpaired Stock and, to the extent consisting
of Patriot Stock, Paired Shares of Purchase Stock and Patriot Operating
Company Stock, and for financial accounting purposes shall be accounted for as
a "purchase";
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WHEREAS, the boards of directors of New Patriot, Patriot Operating Company
and Wyndham have received fairness opinions from their financial advisors, and
the Special Committee of the Board of Directors of Wyndham has received a
fairness opinion from its financial advisor, relating to the transactions
contemplated hereby and by the Merger Agreement as more fully described herein
and therein;
WHEREAS, New Patriot desires to make certain representations, warranties,
covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and in
order to induce Wyndham to proceed with the Merger and the other transactions
contemplated by the Merger Agreement, the parties hereto hereby agree as
follows:
ARTICLE 1. Representations and Warranties of New Patroit
New Patriot represents and warrants to Wyndham as follows:
1.1 Existence, Good Standing, Authority. New Patriot is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own,
operate, lease and encumber its properties and to carry on its business as now
conducted.
1.2 Authorization, Validity and Effect of Agreement. New Patriot has the
requisite power and authority to enter into the transactions contemplated
hereby and to execute and deliver this Agreement and the other Ancillary
Agreements to which it is or will be a party. The Board of Directors of New
Patriot has approved this Agreement and the Merger, and has ratified,
confirmed and adopted the Merger Agreement, the Pairing Agreement Amendment,
the Stock Purchase Agreement, the Ancillary Agreements to which it is a party
and the transactions contemplated hereby and thereby, and has recommended that
the holders of New Patriot Stock authorize and approve the Merger Agreement,
as ratified by New Patriot pursuant to this Agreement, and the Pairing
Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required under applicable law or the rules of the NYSE, the Stock
Purchase Agreement, at the Patriot stockholders' meeting which will be held in
accordance with the provisions of Section 8.3 of the Merger Agreement. As of
the date hereof, all of the directors and executive officers of New Patriot
have indicated that they presently intend to vote all shares of New Patriot
Stock which they own to approve the Merger Agreement, as ratified by New
Patriot pursuant to this Agreement, the Pairing Agreement Amendment and, if
stockholder approval of the Stock Purchase Agreement is required under
applicable law or the rules of the NYSE, the Stock Purchase Agreement, at the
Patriot stockholders' meeting. Subject to the approval of the Merger
Agreement, as ratified by New Patriot pursuant to this Agreement, the Pairing
Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required under applicable law or the rules of the NYSE, the Stock
Purchase Agreement, by the requisite vote of the stockholders of New Patriot,
the execution by New Patriot of this Agreement, the Merger Agreement and the
other Ancillary Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
requisite corporate action on the part of New Patriot. This Agreement and the
Merger Agreement constitute, and the other Ancillary Agreements to which it is
or will become a party (when executed and delivered) will constitute, the
valid and legally binding obligations of New Patriot, enforceable against New
Patriot in accordance with their respective terms, subject to applicable
bankruptcy, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
1.3 Capitalization. The authorized capital stock of New Patriot consists of
650,000,000 shares of New Patriot Stock, 100,000,000 shares of Preferred
Stock, par value $.01 per share, and 750,000,000 shares of Excess Stock, par
value $.01 per share. All issued and outstanding shares of New Patriot Stock
are duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights.
1.4 No Violation. Except as set forth in Section 7.5 of the Patriot
Disclosure Letter, neither the execution and delivery by New Patriot of this
Agreement or the other Ancillary Agreements nor consummation by New
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Patriot of the transactions contemplated by this Agreement or the other
Ancillary Agreements in accordance with their terms, will: (i) conflict with
or result in a breach of any provisions of the Patriot Certificate, the
Surviving Corporation Certificate, the Patriot Bylaws, or the Surviving
Corporation Bylaws, or the organizational documents, partnership agreements or
joint venture agreements of other Patriot or any Patriot Subsidiary; (ii)
result in a breach or violation of, a default under, or the triggering of any
payment or other material obligations pursuant to, or accelerate vesting
under, any of the Patriot Stock Plans, or any grant or award under any of the
foregoing; (iii) violate, or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the
termination or in a right of termination or cancellation of, or accelerate the
performance required by, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties of other Patriot or
any of the Patriot Subsidiaries under, or result in being declared void,
voidable, or without further binding effect, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust or any
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which New Patriot or any of the Patriot
Subsidiaries is a party, or by which Patriot or any of the Patriot
Subsidiaries or any of their properties is bound or affected, except for any
of the foregoing matters which, individually or in the aggregate, could not
reasonably be expected to have a New Patriot Material Adverse Effect; or (iv)
other than the Regulatory Filings, require any consent, approval or
authorization of, or declaration, filing or registration with, any
governmental or regulatory authority except where the failure to obtain any
such consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority could not have a
New Patriot Material Adverse Effect.
1.5 Taxes. Except as would otherwise not be reasonably expected to have a
New Patriot Material Adverse Effect:
(a) Each of the corporate Patriot Subsidiaries of which all the
outstanding capital stock is owned solely by New Patriot is a Qualified
REIT Subsidiary as defined in Section 856(i) of the Code.
(b) New Patriot has qualified, and shall be qualified through the date of
consummation of the Merger, to be treated as a REIT within the meaning of
Sections 856-860 of the Code, including, without limitation, the
requirements of Section 856 and 857 of the Code, for all applicable tax
years to which New Patriot's federal income tax returns are subject to
audit and New Patriot is subject to assessment for taxes reportable
therein.
(c) Assuming the accuracy of the representations made by CJC in Sections
9.10 and 9.11 of the Business Combination Agreement and the representations
made by Patriot Operating Company in Section 8.8 of the Business
Combination Agreement, the consummation of the Business Combination and the
Merger would not, if consummated as of the date of this Agreement, with the
Merger immediately following the Business Combination, cause CJC to lose
its exemption from the application of Section 269B(a)(3) of the Code
pursuant to Section 136(c)(3) of the Deficit Reduction Act of 1984 (the
"Deficit Act"). As of the date hereof, Patriot has no knowledge, without
independent inquiry, of any facts indicating that the foregoing
representations made by CJC and Patriot Operating Company are inaccurate.
ARTICLE 2. Covenants and Agreements of New Patroit
2.1 Covenants and Agreements under Merger Agreement. New Patriot hereby
covenants and agrees with Wyndham that it will be bound by and will perform
each covenant and agreement set forth in the Merger Agreement that by its
terms is binding upon, or to be performed by, Patriot to the same extent as if
each such covenant and agreement were set forth herein and referred to "New
Patriot" in place of "Patriot." Each such covenant and agreement shall be
deemed to be incorporated by reference herein as if set forth in full in this
Agreement.
2.2 Ancillary Agreements. At or prior to the Closing, New Patriot shall
execute and deliver each of the Ancillary Agreements to which it is a party
that, pursuant to Section 1.4 of the Merger Agreement, is to be executed and
delivered by it at or prior to the Closing.
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2.3 New Patriot Stock. New Patriot acknowledges and agrees that shares of
New Patriot Stock will be issued in accordance with Section 5.2(a) of the
Merger Agreement to the stockholders of Wyndham in connection with the Merger
and will be paired with the Patriot Operating Company Stock issued pursuant to
the Wyndham/Patriot Operating Company Subscription Agreement in accordance
with the Pairing Agreement, and that Wyndham shall not at any time become a
stockholder of Patriot Operating Company. The provisions of this Section 2.3
and the Wyndham/Patriot Operating Company Subscription Agreement are intended
to comply with Sections 2(a) and 2(b) of the Pairing Agreement.
ARTICLE 3. Covenants and Agreements of Wyndham
Wyndham hereby covenants and agrees with New Patriot that Wyndham will
continue to be bound by and will perform each covenant and agreement set forth
in the Merger Agreement that by its terms is binding upon, or to be performed
by, Wyndham as if each reference in the Merger Agreement to "Patriot" were a
reference to "New Patriot." Each such covenant and agreement shall be deemed
to be incorporated by reference herein as if set forth in full in this
Agreement.
ARTICLE 4. Termination; Amendment; Waiver
4.1 Termination. If the Merger Agreement has been terminated, this Agreement
may be terminated and abandoned, at any time prior to the Effective Time,
whether before or after approval of the matters contemplated hereby by the
stockholders of New Patriot, Wyndham or Patriot Operating Company, by the
party terminating the Merger Agreement in accordance with its terms.
4.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 4.1, this Agreement shall forthwith become void and have
no effect, without any liability or obligation on the part of New Patriot or
Wyndham other than the provisions of this Section 4.2, the last sentence of
Section 5.3, and Section 5.4. Nothing contained in this Section 4.2 shall
relieve any party for any breach of the representations, warranties,
covenants, or agreements set forth in this Agreement.
4.3 Extension; Waiver. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in this agreement or in any document delivered
pursuant to this Agreement or (c) subject to the first sentence of Section
5.5, waive compliance with any of the agreements or conditions contained in
this Agreement. Any Agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver
of such rights.
ARTICLE 5. General Provisions
5.1 Non-Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument pursuant to this Agreement shall not survive the Merger, provided,
however, that the agreements contained in Section 2.1 and Article 3 (to the
extent that any such agreements in Section 2.1 or Article 3 relate to any
covenants in the Merger Agreement that survive the Merger) and this Article 5
shall survive the Merger.
5.2 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
<TABLE>
<S> <C>
If to New Patri-
ot: Patriot American Hospitality, Inc.
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
</TABLE>
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<TABLE>
<S> <C>
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: Gilbert G. Menna, P.C.
If to Wyndham: Wyndham Hotel Corporation
2001 Bryan Street
Suite 2300
Dallas, TX 75201
Attn: James D. Carreker
With copies to: Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 220
Dallas, TX 75201-6776
Attn: M. Charles Jennings
</TABLE>
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
5.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned prior to the
Closing by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
except for the provisions of Section 2.1 (to the extent it relates to Sections
8.12 and 8.13 of the Merger Agreement), nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto
or their respective heirs, successors, executors, administrators and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
5.4 Entire Agreement. This Agreement, the Exhibits and the Patriot
Disclosure Letter and all provisions of the Merger Agreement incorporated
herein by reference and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
5.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective boards of directors, at any time before or
after approval of matters presented in connection herewith to the stockholders
of Patriot Operating Company, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
5.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
5.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one
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and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
5.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
5.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
5.10 Waivers. Except as provided in this Agreement, no action taken pursuant
to this Agreement, including, without limitation, any investigation by or on
behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
5.11 Incorporation. The Patriot Disclosure Letter and the provisions of the
Merger Agreement are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
5.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
5.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions thereof if
any Delaware Court, this being in addition to any other remedy to which they
are entitled at law or in equity. Any requirements for the securing or posting
of any bond with respect to such remedy are hereby waived by each of the
parties hereto.
5.14 Certain Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings ascribed to them in the
Merger Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST Wyndham Hotel Corporation
/s/ Carla S. Moreland /s/ Anne L. Raymond
By: _________________________________ By: _________________________________
Name:Carla S. Moreland Name:Anne L. Raymond
Title:Vice President--General Title:Executive Vice President
Counsel and Secretary and Chief Financial Officer
ATTEST Patriot American Hospitality, Inc.
/s/ William W. Evans III /s/ Paul A. Nussbaum
By: _________________________________ By: _________________________________
Name:William W. Evans III Name:Paul A. Nussbaum
Title:Office of the Chairman Title:Chairman, Chief Executive
Officer and President
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ANNEX C
RATIFICATION AGREEMENT
This RATIFICATION AGREEMENT (this "Agreement"), is made and entered into as
of July 24, 1997 between Patriot American Hospitality Operating Company, a
Delaware corporation and formerly known as Bay Meadows Operating Company
("Patriot Operating Company"), Patriot American Hospitality, Inc., a Delaware
corporation which operates as a real estate investment trust ("New Patriot"),
Wyndham Hotel Corporation, a Delaware corporation ("Wyndham") and CF
Securities, L.P., a Texas limited partnership (the "Principal Stockholder").
RECITALS
WHEREAS, Patriot American Hospitality, Inc., a Virginia corporation and the
predecessor by merger to New Patriot ("Patriot"), and Wyndham entered into an
Agreement and Plan of Merger, dated as of April 14, 1997 (the "Merger
Agreement"), pursuant to which Wyndham agreed to merge with and into Patriot
(the "Merger");
WHEREAS, Patriot and the Principal Stockholder entered into a Stock Purchase
Agreement dated as of April 14, 1997 (the "Stock Purchase Agreement"),
pursuant to which Patriot agreed to purchase and Principal Stockholder agreed
to sell all of the Principal Stockholder's shares of Wyndham Common Stock (as
defined below) upon the terms and conditions stated therein immediately prior
to the consummation of the Merger (the "Stock Purchase");
WHEREAS, New Patriot (the successor by merger to Patriot and formerly named
"California Jockey Club"), Patriot and Patriot Operating Company entered into
an Agreement and Plan of Merger, dated as of February 24, 1997 (the "Business
Combination Agreement"), pursuant to which Patriot, New Patriot and Patriot
Operating Company agreed to effect a business combination among Patriot, New
Patriot and Patriot Operating Company (the "Business Combination");
WHEREAS, the Business Combination has been consummated, and as a result
thereof Patriot has merged with and into New Patriot, with New Patriot being
the surviving company in the Merger;
WHEREAS, as a result of the Business Combination, New Patriot has succeeded
to the rights and obligations of Patriot under the Merger Agreement and the
Stock Purchase Agreement;
WHEREAS, New Patriot and Wyndham have executed and delivered a Ratification
Agreement of even date herewith (the "Patriot Ratification Agreement")
pursuant to which New Patriot has expressly agreed with Wyndham to ratify and
approve the Merger, the Merger Agreement and certain Ancillary Agreements, and
to perform the covenants and agreements of Patriot thereunder;
WHEREAS, the shares of common stock, par value $.01 per share, of New
Patriot (the "New Patriot Stock") and the shares of common stock, par value
$.01 per share, of Patriot Operating Company (the "Patriot Operating Company
Stock") are paired and transferrable and traded only in combination as a
single unit (the "Paired Shares") on the New York Stock Exchange pursuant to
the Pairing Agreement dated as of February 17, 1983 between New Patriot and
Patriot Operating Company, as amended (the "Pairing Agreement");
WHEREAS, the Merger Agreement contemplates that the shares of common stock,
par value $.01 per share, of Wyndham (the "Wyndham Common Stock") will be
converted into cash and/or Paired Shares pursuant to the terms of the Merger
Agreement and the Stock Purchase Agreement contemplates that the Principal
Stockholder will receive cash, Paired Shares and/or unpaired shares of a
series of preferred stock of Patriot (the "Patriot Unpaired Stock") pursuant
to the terms of the Stock Purchase;
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WHEREAS, the Merger Agreement and the Stock Purchase Agreement also
contemplate that Patriot Operating Company will execute and deliver this
Agreement, pursuant to which Patriot Operating Company will make certain
representations and warranties to Wyndham and the Principal Stockholder and
enter into certain covenants and agreements with New Patriot, Wyndham and the
Principal Stockholder in order to effectuate the Merger and the Stock Purchase
and to carry out the terms of the Merger Agreement and the Stock Purchase
Agreement and transactions contemplated thereby;
WHEREAS, pursuant to the Merger Agreement, Patriot Operating Company will
enter into the Wyndham/Patriot Operating Company Subscription Agreement with
Wyndham immediately prior to the closing of the Merger, pursuant to which
Wyndham will agree to pay for, and Patriot Operating Company will issue
directly to the holders of Wyndham Common Stock, a number of shares of Patriot
Operating Company Stock equal to the number of shares of Patriot Stock to be
issued to such holders pursuant to the Merger;
WHEREAS, the boards of directors of New Patriot, Wyndham and Patriot
Operating Company have each determined that the Merger between New Patriot and
Wyndham, in which the outstanding shares of Wyndham Stock will be converted
into Paired Shares and/or cash, is in the best interests of their respective
companies and stockholders and presents an opportunity for their respective
companies to achieve long-term strategic and financial benefits, and
accordingly have agreed to effect the transactions provided for in the Merger
Agreement and herein upon the terms and subject to the conditions set forth
herein, and the board of directors of Patriot Operating Company has made a
similar determination with respect to the Stock Purchase;
WHEREAS, it is intended that the Stock Purchase by Patriot and the Merger
provided for herein be treated as an integrated transaction that, for federal
income tax purposes, qualifies as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code")
and pursuant to which the consideration received by all of the stockholders of
Wyndham shall be tax-free to such stockholders to the extent such
consideration consists of Patriot Unpaired Stock and, to the extent consisting
of Patriot Stock, Paired Shares of Purchase Stock and Patriot Operating
Company Stock), and for financial accounting purposes shall be accounted for
as a "purchase";
WHEREAS, the boards of directors of New Patriot and Wyndham have received
fairness opinions from their financial advisors, and the Special Committee of
the Board of Directors of Wyndham has received a fairness opinion from its
financial advisor, relating to the transactions contemplated hereby and by the
Merger Agreement as more fully described herein and therein; and
WHEREAS, Patriot Operating Company desires to make certain representations,
warranties, covenants and agreements in connection with the Merger and the
Stock Purchase.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, and in
order to induce New Patriot and Wyndham to proceed with the Merger and the
other transactions contemplated by the Merger Agreement, and to induce Patriot
Operating Company and the Principal Stockholder to proceed with the Stock
Purchase and the other transactions contemplated by the Stock Purchase
Agreement, the parties hereto hereby agree as follows:
ARTICLE 1. Representations and Warranties of Patriot Operating Company
Patriot Operating Company represents and warrants to Wyndham and the
Principal Stockholder as follows:
1.1 Existence, Good Standing, Authority. Patriot Operating Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, operate, lease and encumber its properties and to carry on
its business as now conducted.
1.2 Authorization, Validity and Effect of Agreement. Patriot Operating
Company has the requisite power and authority to enter into the transactions
contemplated hereby and to execute and deliver this Agreement and
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the other Ancillary Agreements to which it is or will be a party. The Board of
Directors of Patriot Operating Company has approved this Agreement, the
Merger, the Merger Agreement, the Patriot Operating Company Stock Issuance,
the Pairing Agreement Amendment, the Patriot Operating Company Charter
Amendment, the Stock Purchase Agreement (including the issuance of Patriot
Operating Company Stock in connection with the Paired Shares issuable by
Patriot and Patriot Operating Company upon conversion of Unpaired Patriot
Stock upon the terms described in Exhibit B thereto), the Voting Agreements,
the Registration Rights Agreement and the other Ancillary Agreements to which
it is a party and the transactions contemplated hereby and thereby, and has
agreed to recommend that the holders of Patriot Operating Company Stock
authorize and approve the Patriot Operating Company Stock Issuance, the
Patriot Operating Company Charter Amendment, the Pairing Agreement Amendment
and, if stockholder approval of the Stock Purchase Agreement is required under
applicable law or the rules of the NYSE, the Stock Purchase Agreement, at the
Patriot Operating Company stockholders' meeting which will be held in
accordance with the provisions of Section 8.3 of the Merger Agreement. As of
the date hereof, all of the directors and executive officers of Patriot
Operating Company have indicated that they presently intend to vote all shares
of Patriot Operating Company Stock which they own to approve the Patriot
Operating Company Stock Issuance, the Patriot Operating Company Charter
Amendment, the Pairing Agreement Amendment and, if stockholder approval of the
Stock Purchase Agreement is required under applicable law or the rules of the
NYSE, the Stock Purchase Agreement, at the Patriot Operating Company
stockholders' meeting. Subject to the approval of the Patriot Operating
Company Stock Issuance, the Patriot Operating Company Charter Amendment, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required under applicable law or the rules of the NYSE, the Stock
Purchase Agreement, by the requisite vote of the stockholders of Patriot
Operating Company, the execution by Patriot Operating Company of this
Agreement, and the other Ancillary Agreements to which it is a party, and the
consummation of the transactions contemplated hereby and thereby, have been
duly authorized by all requisite corporate action on the part of Patriot
Operating Company. This Agreement constitutes, and the other Ancillary
Agreements to which it will become a party (when executed and delivered) will
constitute, the valid and legally binding obligations of Patriot Operating
Company, enforceable against Patriot Operating Company in accordance with
their respective terms, subject to applicable bankruptcy, moratorium or other
similar laws relating to creditors' rights and general principles of equity.
1.3 Patriot Operating Company Stock.
(a) The Patriot Operating Company Stock to be issued in connection with the
Merger and the Merger Agreement, when issued in accordance with the terms of
the Merger Agreement, will have been duly and validly authorized by all
necessary corporate action on the part of Patriot Operating Company. The
Patriot Operating Company Stock to be issued in connection with the Merger and
the Merger Agreement, when issued in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid, nonassessable and free of
preemptive rights.
(b) The Patriot Operating Company Stock to be issued in connection with the
Stock Purchase and the Stock Purchase Agreement (including the Patriot
Operating Company Stock issuable in connection with the Paired Shares issuable
by Patriot and Patriot Operating Company upon conversion of Unpaired Patriot
Stock upon the terms described in Exhibit B thereto), when issued in
accordance with the terms of the Stock Purchase Agreement, will have been duly
and validly authorized by all necessary corporate action on the part of
Patriot Operating Company. The Patriot Operating Company Stock to be issued in
connection with the Stock Purchase and the Stock Purchase Agreement (including
the Patriot Operating Company Stock issuable in connection with Paired Shares
issuable by Patriot and Patriot Operating Company upon conversion of Unpaired
Patriot Stock upon the terms described in Exhibit B thereto), when issued in
accordance with the terms of the Stock Purchase Agreement (including Exhibit B
thereto) will be validly issued, fully paid, nonassessable and free of
preemptive rights.
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ARTICLE 2. Representations and Warranties of New Patroit
New Patriot represents and warrants to Patriot Operating Company, Wyndham
and the Principal Stockholder as follows:
2.1 Existence, Good Standing, Authority. New Patriot is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own,
operate, lease and encumber its properties and to carry on its business as now
conducted.
2.2 Authorization, Validity and Effect of Agreement. New Patriot has the
requisite power and authority to enter into the transactions contemplated
hereby and to execute and deliver this Agreement and the other Ancillary
Agreements to which it is or will be a party. The Board of Directors of New
Patriot has approved this Agreement and the Merger, and has ratified,
confirmed and adopted the Merger Agreement, the Pairing Agreement Amendment,
the Stock Purchase Agreement, the Ancillary Agreements to which it is a party
and the transactions contemplated hereby and thereby, and has recommended that
the holders of New Patriot Stock authorize and approve the Merger Agreement,
the Patriot Ratification Agreement, the Pairing Agreement Amendment and, if
stockholder approval of the Stock Purchase Agreement is required under
applicable law or the rules of the NYSE, the Stock Purchase Agreement, at the
Patriot stockholders' meeting which will be held in accordance with the
provisions of Section 8.3 of the Merger Agreement. As of the date hereof, all
of the directors and executive officers of New Patriot have indicated that
they presently intend to vote all shares of New Patriot Stock which they own
to approve the Merger Agreement, the Patriot Ratification Agreement, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required under applicable law or the rules of the NYSE, the Stock
Purchase Agreement, at the Patriot stockholders' meeting. Subject to the
approval of the Merger Agreement, the Patriot Ratification Agreement, the
Pairing Agreement Amendment and, if stockholder approval of the Stock Purchase
Agreement is required under applicable law or the rules of the NYSE, the Stock
Purchase Agreement, by the requisite vote of the stockholders of New Patriot,
the execution by New Patriot of this Agreement, the Merger Agreement and the
other Ancillary Agreements to which it is a party, and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action on the part of New Patriot. This Agreement and the
Merger Agreement constitute, and the other Ancillary Agreements to which it is
or will become a party (when executed and delivered) will constitute, the
valid and legally binding obligations of New Patriot, enforceable against New
Patriot in accordance with their respective terms, subject to applicable
bankruptcy, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
ARTICLE 3. Representations and Warranties of Wyndham
Wyndham represents and warrants to Patriot Operating Company, New Patriot
and the Principal Stockholder as follows:
3.1 Existence, Good Standing, Authority. Wyndham is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite corporate power and authority to own,
operate, lease and encumber its properties and to carry on its business as now
conducted.
3.2 Authorization, Validity and Effect of Agreement. Wyndham has the
requisite power and authority to enter into the transactions contemplated
hereby and to execute and deliver this Agreement and the other Ancillary
Agreements to which it is or will be a party. The Board of Directors of
Wyndham has approved this Agreement, the Merger, the other Ancillary
Agreements to which it is a party and the transactions contemplated hereby and
thereby, and has agreed to recommend that the holders of Wyndham Stock
authorize and approve the Merger Agreement and the Patriot Ratification
Agreement at the Wyndham stockholders' meeting which will be held in
accordance with the provisions of Section 8.3 of the Merger Agreement. In
connection with the foregoing, the Board of Directors of Wyndham has taken
such action and votes as are necessary on its part to render the provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL") and all other
applicable takeover statutes inapplicable to this Agreement, the Merger
Agreement, the Merger, the Stock Purchase
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Agreement, the Stock Purchase and the transactions contemplated hereby and
thereby and by the other Ancillary Agreements. As of the date hereof, all of
the directors and executive officers of Wyndham have indicated that they
presently intend to vote all shares of Wyndham Common Stock which they own to
approve the Merger Agreement and the Patriot Ratification Agreement at the
Wyndham stockholders' meeting. Subject to the approval of the Merger Agreement
and the Patriot Ratification Agreement by the requisite vote of the
stockholders of Wyndham, the execution by Wyndham of this Agreement, the
Merger Agreement and the other Ancillary Agreements to which it is a party,
and the consummation of the transactions contemplated hereby and thereby have
been duly authorized by all requisite corporate action on the part of Wyndham.
This Agreement and the Merger Agreement constitute, and the other Ancillary
Agreements to which it is or will become a party (when executed and delivered)
will constitute, the valid and legally binding obligations of Wyndham,
enforceable against Wyndham in accordance with their respective terms, subject
to applicable bankruptcy, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
ARTICLE 4. Representations and Warranties of the Principal Stockholder
The Principal Stockholder represents and warrants to Patriot Operating
Company, New Patriot and Wyndham as follows:
4.1 Organization and Good Standing. The Principal Stockholder is duly
organized, validly existing and in good standing under the laws of the State
of Texas.
4.2 Power and Authorization. The Principal Stockholder has full legal right,
power and authority to enter into and perform its obligations under this
Agreement and the other agreements and documents required to be delivered by
it hereunder. The execution, delivery and performance by the Principal
Stockholder of this Agreement have been duly authorized by all necessary
action on the part of the Principal Stockholder. This Agreement constitutes
the legal, valid and binding obligation of the Principal Stockholder,
enforceable against it in accordance with its terms.
ARTICLE 5. Covenants and Agreements of Patriot Operating Company
5.1 Covenants and Agreements under Merger Agreement. Patriot Operating
Company hereby covenants and agrees with Wyndham and New Patriot that Patriot
Operating Company will be bound by and will perform each covenant and
agreement set forth in the Merger Agreement (including those relating to the
assumption by New Patriot or Patriot Operating Company of Wyndham Stock
Options in accordance with Section 5.2(e) of the Merger Agreement) that by its
terms is to be agreed to, or performed by, Patriot Operating Company to the
same extent as if each such covenant and agreement were set forth herein. Each
such covenant and agreement shall be deemed to be incorporated by reference
herein as if set forth in full in this Agreement.
5.2 Ancillary Agreements. At or prior to the Closing, Patriot Operating
Company shall execute and deliver each of the Ancillary Agreements to which it
is a party that, pursuant to Section 1.4 of the Merger Agreement, is to be
executed and delivered by it at or prior to the Closing. Contemporaneously
with the execution and delivery of this Agreement, Patriot Operating Company
shall execute and deliver the Standstill Agreement, the Registration Rights
Agreement and the Voting Agreements.
5.3 Patriot Operating Company Shares Issuable in Connection with the
Merger. Patriot Operating Company acknowledges and agrees that the shares of
Patriot Operating Company Stock to be issued pursuant to the Wyndham/Patriot
Operating Company Subscription Agreement will be issued in accordance with
Section 5.2(a) of the Merger Agreement to the stockholders of Wyndham in
connection with the Merger and will be paired with the Patriot Stock issued in
the Merger in accordance with the Pairing Agreement and the Wyndham/Patriot
Operating Company Subscription Agreement, and will be transferable and traded
only as a single unit, and that Wyndham shall not at any time become a
stockholder of Patriot Operating Company. The provisions of this Section 5.3
and the Wyndham/Patriot Operating Company Subscription Agreement are intended
to comply with Sections 2(a) and 2(b) of the Pairing Agreement.
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5.4 Patriot Operating Company Shares Issuable in Connection with the Stock
Purchase. Patriot Operating Company acknowledges and agrees with the Principal
Stockholder that on the closing date of the Stock Purchase, Patriot Operating
Company shall issue to the Principal Stockholder the shares of Patriot
Operating Company Stock that are issuable in connection with the issuance of
Paired Shares to the Principal Stockholder pursuant to the Stock Purchase
Agreement, that upon conversion of the Unpaired Patriot Stock in accordance
with the terms thereof (as described in Exhibit B thereto) Patriot Operating
Company shall issue to the Principal Stockholder the shares of Patriot
Operating Company Stock that are issuable to the Principal Stockholder upon
such conversion, and that such shares of Patriot Operating Company Stock will
be paired with the Patriot Stock issued in the Stock Purchase or upon
conversion of the Unpaired Patriot Stock in accordance with the Pairing
Agreement. The provisions of this Section 5.4 and the Stock Purchase Agreement
are intended to comply with Sections 2(a) and 2(b) of the Pairing Agreement.
5.5 Patriot Operating Company Bylaws. Patriot Operating Company shall cause
its Bylaws as in effect immediately prior to the Effective Time to contain
terms required by and consistent with the Merger Agreement, the Stock Purchase
Agreement and the Cooperation Agreement and terms not otherwise prohibited
from being contained in such bylaws by such agreements.
5.6 Directors and Officers of Patriot Operating Company. Patriot Operating
Company shall take such actions as are necessary such that the Board of
Directors of Patriot Operating Company shall be constituted as provided in
Sections 4.3 and 4.4 of the Merger Agreement, subject to any required
approvals by the stockholders of Patriot Operating Company.
5.7 Further Action. Patriot Operating Company shall, subject to the
fulfillment at or before the Effective Time of each of the conditions set
forth in the Merger Agreement to the obligation of New Patriot to effect the
Merger or the waiver thereof, perform such further acts and execute such
documents as may reasonably be required to effect the Merger, the Patriot
Operating Company Stock Issuance, the Patriot Operating Company Charter
Amendment, the Pairing Agreement Amendment and the transactions contemplated
by the Merger Agreement, the Stock Purchase Agreement, this Agreement and by
the other Ancillary Agreements.
5.8 Expenses. All costs and expenses incurred by Patriot Operating Company
in connection with this Agreement, the Merger Agreement, the Stock Purchase
Agreement and the transactions contemplated hereby and thereby shall be paid
by Patriot Operating Company except to the extent otherwise provided in
Section 8.11 of the Merger Agreement or as otherwise may be agreed to by the
parties. All costs and expenses for professional services rendered in
connection with the transactions contemplated by this Agreement, the Merger
Agreement and the transactions contemplated thereby, including, but not
limited to, investment banking and legal services, will be paid by each party
incurring such costs and expenses.
ARTICLE 6. Covenants and Agreements of New Patriot
New Patriot covenants and agrees with Wyndham, Patriot Operating Company and
the Principal Stockholder that New Patriot will be bound by the provisions of
the Merger Agreement and the Stock Purchase Agreement under which it is
required to render performance to or for the benefit of Patriot Operating
Company, and that New Patriot will perform all such obligations in accordance
with the terms of the Merger Agreement and the Stock Purchase Agreement.
ARTICLE 7. Covenants and Agreements of Wyndham
Wyndham covenants and agrees with Patriot Operating Company, New Patriot and
the Principal Stockholder that Wyndham will be bound by the provisions of the
Merger Agreement under which it is required to render performance to or for
the benefit of Patriot Operating Company, and that Wyndham will perform all
such obligations in accordance with the terms of the Merger Agreement.
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ARTICLE 8. Covenants and Agreements of the Principal Stockholder
The Principal Stockholder covenants and agrees with Patriot Operating
Company, New Patriot and Wyndham that the Principal Stockholder will be bound
by the provisions of the Stock Purchase Agreement under which it is required
to render performance to or for the benefit of Patriot Operating Company, and
that the Principal Shareholder will perform all such obligations in accordance
with the terms of the Stock Purchase Agreement.
ARTICLE 9. Termination; Amendment; Waiver
9.1 Termination. If the Merger Agreement has been terminated, this Agreement
may be terminated and abandoned, at any time prior to the Effective Time,
whether before or after approval of the matters contemplated hereby by the
stockholders of Patriot Operating Company, New Patriot and Wyndham, by the
party terminating the Merger Agreement in accordance with its terms.
9.2 Effect of Termination. In the event of termination of this Agreement as
provided in Section 9.1, this Agreement shall forthwith become void and have
no effect, without any liability or obligation on the part of Patriot
Operating Company, New Patriot, Wyndham or Principal Stockholder other than
the provisions of this Section 9.2, Section 5.7, the last sentence of Section
10.3 and Section 10.4. Nothing contained in this Section 9.2 shall relieve any
party for any breach of the representations, warranties, covenants, or
agreements set forth in this Agreement.
9.3 Extension; Waiver. At any time prior to the Effective Time, the parties
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations
and warranties contained in this agreement or in any document delivered
pursuant to this Agreement or (c) subject to the first sentence of Section
10.5, waive compliance with any of the agreements or conditions contained in
this Agreement. Any Agreement on the part of a party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert any
of its rights under this Agreement or otherwise shall not constitute a waiver
of such rights.
ARTICLE 10. General Provisions
10.1 Non-Survival of Representations, Warranties and Agreements. All
representations, warranties and agreements in this Agreement or in any
instrument pursuant to this Agreement shall not survive the Merger, provided,
however, that the agreements contained in Section 5.1, Article 6, Article 7
and Article 8 (to the extent that any such agreements in Section 5.1, or
Articles 6, 7 and 8 relate to any covenants in the Merger Agreement that
survive the Merger) and this Article 10 shall survive the Merger; and
provided, further, that all representations, warranties and covenants of
Patriot Operating Company herein made to or with the Principal Stockholder and
of the Principal Stockholder herein made to or with Patriot Operating Company
shall survive the Closing of the Stock Purchase.
10.2 Notices. Any notice required to be given hereunder shall be in writing
and shall be sent by facsimile transmission (confirmed by any of the methods
that follow), courier service (with proof of service), hand delivery or
certified or registered mail (return receipt requested and first-class postage
prepaid) and addressed as follows:
<TABLE>
<S> <C>
If to Patriot Operating
Company: Patriot American Hospitality
Operating Company
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
</TABLE>
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<TABLE>
<S> <C>
With copies to: Goodwin, Procter & Hoar llp
Exchange Place
Boston, MA 02109-2881
Attn: Gilbert G. Menna, P.C.
If to New Patriot: Patriot American Hospitality, Inc.
Tri-West Plaza
3030 LBJ Freeway
Suite 1500
Dallas, TX 75234
Attn: Paul A. Nussbaum
With copies to: Goodwin, Procter & Hoar llp
Exchange Place
Boston, MA 02109-2881
Attn: Gilbert G. Menna, P.C.
If to Wyndham: Wyndham Hotel Corporation
2001 Bryan Street
Suite 2300
Dallas, TX 75201
Attn: James D. Carreker
With copies to: Locke Purnell Rain Harrell
2200 Ross Avenue
Suite 220
Dallas, TX 75201-6776
Attn: M. Charles Jennings
If to Principal
Stockholder: CF Securities, L.P.
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attn: Ms. Susan T. Groenteman
Crow Family Holdings
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attn: M. Kevin Bryant
and:
With copies to: Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, TX 75201
Attn: Derek R. McClain
</TABLE>
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been delivered as of the date
so delivered.
10.3 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned prior to the
Closing by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject to
the preceding sentence, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. Notwithstanding anything contained in this Agreement to the contrary,
except for the provisions of Section 5.1 and Articles 6 and 7 (to the extent
Section 5.1 and Articles 6 and 7 relate to Sections
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<PAGE>
8.12 and 8.13 of the Merger Agreement), nothing in this Agreement, expressed
or implied, is intended to confer on any person other than the parties hereto
or their respective heirs, successors, executors, administrators and assigns
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
10.4 Entire Agreement. This Agreement, the Exhibits and the Patriot
Disclosure Letter and all provisions of the Merger Agreement incorporated
herein by reference and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
10.5 Amendment. This Agreement may be amended by the parties hereto, by
action taken by their respective boards of directors or general partner, at
any time before or after approval of matters presented in connection herewith
to the stockholders of Patriot Operating Company, but after any such
stockholder approval, no amendment shall be made which by law requires the
further approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
10.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflict of laws. Each of the parties hereto hereby irrevocably and
unconditionally consents to submit to the exclusive jurisdiction of the courts
of the State of Delaware and of the United States of America located in the
State of Delaware (the "Delaware Courts") for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and
agrees not to commence any litigation relating thereto except in such courts),
waives any objection to the laying of venue of any such litigation in the
Delaware Courts and agrees not to plead or claim in any Delaware Court that
such litigation brought therein has been brought in any inconvenient forum.
10.7 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
10.8 Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9 Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
10.11 Incorporation. The Patriot Disclosure Letter and the provisions of the
Merger Agreement are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
10.12 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
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<PAGE>
10.13 Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions and other equitable remedies to prevent breaches of
this Agreement and to enforce specifically the terms and provisions thereof if
any Delaware Court, this being in addition to any other remedy to which they
are entitled at law or in equity. Any requirements for the securing or posting
of any bond with respect to such remedy are hereby waived by each of the
parties hereto.
10.14 Certain Definitions. Capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings ascribed to them in the
Merger Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
ATTEST Patriot American Hospitality
Operating Company
/s/ William W. Evans III
By: _________________________________ /s/ Paul A. Nussbaum
Name:William W. Evans III By: _________________________________
Title:Office of the Chairman Name:Paul A. Nussbaum
Title:Chairman and
Chief Executive Officer
ATTEST Wyndham Hotel Corporation
/s/ Carla S. Moreland /s/ Anne L. Raymond
By: _________________________________ By: _________________________________
Name:Carla S. Moreland Name:Anne L. Raymond
Title:Vice President--General Title:Executive Vice President and
Counsel and Secretary Chief Financial Officer
ATTEST Patriot American Hospitality, Inc.
/s/ William W. Evans III /s/ Paul A. Nussbaum
By: _________________________________ By: _________________________________
Name:William W. Evans III Name:Paul A. Nussbaum
Title:Office of the Chairman Title:Chairman and
Chief Executive Officer
ATTEST CF Securities, L.P.
/s/ M. Kevin Bryant By: Mill Springs Holdings, Inc.
By: _________________________________ its General Partner
Name:M. Kevin Bryant /s/ Susan T. Groenteman
Title:Secretary By: _________________________________
Name:Susan T. Groenteman
Title:Executive Vice President
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<PAGE>
ANNEX D
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 14,
1997, is between Patriot American Hospitality, Inc., a Virginia corporation
("Purchaser"), and CF Securities, L.P., a Texas limited partnership
("Stockholder").
RECITALS
WHEREAS, Purchaser, California Jockey Club, a Delaware corporation ("Club")
and Bay Meadows Operating Company, a Delaware corporation ("Operating
Company") have entered into an Agreement and Plan of Merger dated as of
February 24, 1997, pursuant to which Purchaser, Club and Operating Company
agreed to engage in a business combination among Purchaser, Club and Operating
Company (the "Business Combination");
WHEREAS, the shares of common stock, par value $.01 per share, of Club and
the shares of common stock, par value $.01 per share, of Operating Company
(the "Operating Company Stock") are paired and transferable and traded only in
combination as a single unit;
WHEREAS, upon the effectiveness of the Business Combination, Purchaser will
have merged with and into Club with Club being the surviving company (the term
"Purchaser", when used in a post-Business Combination context, shall mean Club
after the Business Combination becomes effective);
WHEREAS, the Stockholder is a major stockholder of Wyndham Hotel
Corporation, a Delaware corporation ("Wyndham");
WHEREAS, Purchaser and Wyndham are entering into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement") (all capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement), pursuant to which Purchaser and Wyndham are agreeing to engage in
a merger transaction between Purchaser and Wyndham (the "Merger");
WHEREAS, pursuant to the Merger, Wyndham shall, upon consummation thereof,
have merged with and into Purchaser with Purchaser being the surviving
corporation, and holders of common stock, par value $.01 per share, of Wyndham
(the "Wyndham Common Stock") shall be entitled to receive shares of common
stock, par value $.01 per share, of Purchaser (the "Purchaser Stock") and
shares of Operating Company Stock which will be paired and transferable and
traded only in combination as a single unit (the "Paired Shares");
WHEREAS, as a condition to the willingness of Purchaser to enter into this
Agreement and the Merger Agreement, certain management stockholders of Wyndham
(the "Management Stockholders") and Stockholder have entered into a Proxy
Agreement, dated as of the date hereof (the "Proxy Agreement"), pursuant to
which each of the Management Stockholders and Stockholder have, among other
things, granted to Purchaser an irrevocable proxy to vote his, her or its
shares of Wyndham Common Stock, including the Stockholder Shares (as
hereinafter defined), in favor of the Merger Agreement;
WHEREAS, as a condition to the willingness of Purchaser to enter into this
Agreement and the Merger Agreement, Stockholder has entered into a Standstill
Agreement, dated as of the date hereof but to be effective upon consummation
of the Merger (the "Standstill Agreement"), pursuant to which Stockholder has
agreed to refrain from taking certain actions and to perform certain other
obligations with respect to Purchaser and the Paired Share Consideration,
Unpaired Share Consideration and Cash Consideration (as such terms are
hereinafter defined) to be issued to Stockholder hereunder, upon the terms and
subject to the conditions set forth in the Standstill Agreement;
D-1
<PAGE>
WHEREAS, as of the date hereof, Stockholder beneficially owns 9,447,745
shares of Wyndham Common Stock (together with any shares of Wyndham Common
Stock acquired by Stockholder after the date hereof and prior to the
termination of this Agreement, whether upon the exercise of options,
conversion of convertible securities or otherwise, the "Stockholder Shares");
WHEREAS, it is intended that the Merger and the purchase by Purchaser of the
Stockholder Shares pursuant to this Agreement will be treated as an integrated
transaction that for federal income tax purposes qualifies as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code") and pursuant to which the consideration received by the
shareholders pursuant to the Merger Agreement and this Agreement shall be tax-
free to such shareholders to the extent such consideration consists of
Unpaired Share Consideration and, to the extent consisting of Purchaser Stock,
Paired Shares.
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement and consummate the Merger and certain other transactions
contemplated thereby, Purchaser has required that Stockholder agree, and
Stockholder has agreed, to sell to Purchaser the Stockholder Shares on the
terms and conditions provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained and intending to be legally bound, Purchaser and Stockholder
hereby agree as follows:
ARTICLE 1.
Purchase and Sale
1.1 Purchase and Sale of Stockholder Shares. On the Closing Date (as
hereinafter defined), immediately prior to the Merger (i) Stockholder shall
transfer, assign and deliver to Purchaser, and Purchaser shall purchase from
Stockholder, all of the Stockholder Shares and (ii) Purchaser shall issue or
cause to be issued to Stockholder and, if required pursuant to the provisions
of paragraph (b) below, pay or cause to be paid to Stockholder in exchange
therefor a combination of (x) Paired Shares of Purchaser Stock and Operating
Company Stock, (y) shares of unpaired Series A Preferred Stock, par value $.01
per share, of Purchaser (the "Unpaired Preferred Stock") and, if applicable,
(z) cash, as follows:
(a) Determination of Consideration. At the Closing (as hereinafter
defined) Purchaser shall pay to Stockholder the number of Paired Shares of
Purchaser Stock and Operating Company Stock (the "Paired Share
Consideration") and the cash consideration, if any, that it would have
received pursuant to the Merger Agreement if it were still a stockholder of
Wyndham at the Effective Time (hereinafter used as defined in the Merger
Agreement) and, as such a stockholder, had made the Stockholder Cash
Election (as hereinafter defined), provided, however, that the Paired Share
Consideration to be issued to Stockholder shall be limited and reduced
(after taking into account the cash consideration to be paid to Stockholder
as described above) so that (X) neither Stockholder nor any other person
will, immediately after the Closing, own, or be deemed to own under the
applicable attribution rules of Section 318 (as modified by Section
856(d)(5)) of the Code, Paired Shares of Purchaser Stock and Operating
Company Stock in excess of 9.8% of the outstanding (excluding any shares
which are outstanding but not vested) Paired Shares of Purchaser Stock and
Operating Company Stock immediately after the Merger, and (Y) the receipt
thereof by Stockholder would not otherwise cause any amount derived or
received by, or allocated to, Purchaser to fail to qualify as "rents from
real property" by reason of Section 856(d)(2)(B) of the Code (such
limitations set forth in the foregoing clauses (X) and (Y) being referred
to herein collectively as the "Paired Ownership Limitations"). Stockholder
shall also receive a number of shares of Unpaired Preferred Stock (the
"Unpaired Share Consideration") such that the aggregate number of Paired
Shares and shares of Unpaired Preferred Stock issued as Paired Share
Consideration and Unpaired Share Consideration equals the number of Paired
Shares that otherwise would be issued to the Stockholders as Paired Share
Consideration pursuant to the foregoing provisions of this paragraph (a)
but for the Paired Ownership Limitations; provided, however, that the
shares
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<PAGE>
of Unpaired Preferred Stock to be issued as Unpaired Share Consideration
pursuant to the foregoing shall be reduced to the extent that the issuance
of such stock causes any rent derived or received by Purchaser or its
affiliates to fail to qualify as "rents from real property" by reason of
Section 856(d)(2)(B) of the Code or causes the Purchaser to be "closely
held" within the meaning of Section 856(a)(6) of the Code (such limitations
set forth in this proviso being referred to herein as the "Unpaired
Ownership Limitations"). To the extent that the number of shares of
Unpaired Preferred Stock to be issued as Unpaired Share Consideration is
reduced pursuant to the Unpaired Ownership Limitations, Stockholder shall
receive cash in lieu of Unpaired Share Consideration, with a share of
Unpaired Preferred Stock being valued for such purpose at a value equal to
the "Fair Market Value" (determined in accordance with Section 5.3(a) of
the Merger Agreement) of a Paired Share of Purchaser Stock and Operating
Company Stock. Purchaser shall reasonably determine, after taking into
account the results of the investigation described in Section 2.3 hereof
and such other facts and circumstances known to Purchaser as are relevant
to such determination, the effect, if any, of the Paired Ownership
Limitations and the Unpaired Ownership Limitations on the relative amounts
of the types of consideration to be paid hereunder, but such limitations
shall not decrease or increase the total amount of the consideration
payable hereunder; provided, however, that if the product of the number of
Paired Shares of Purchaser Stock and Operating Company Stock constituting
the Paired Share consideration multiplied by the "Fair Market Value"
(determined in accordance with Section 5.3(a) of the Merger Agreement) of a
Paired Share of Purchaser Stock and Operating Company Stock is less than
Fifty Million Dollars ($50,000,000), then Stockholder may terminate this
Agreement at or prior to the Closing. The Unpaired Preferred Stock shall
have the provisions described on Exhibit A hereto, unless Purchaser and
Stockholder otherwise agree.
(b) Cash Election. On or before the date that is three weeks before the
date on which Purchaser in good faith intends to make the general mailing
to its stockholders of the proxy material soliciting their votes with
respect to the Merger Agreement (but no more than a month before such date,
such intended mailing date being hereinafter referred to as the "Intended
Mailing Date"), Purchaser shall deliver to Stockholder a written notice
notifying Stockholder of the date on which Purchaser intends to make such
mailing and requesting Stockholder to make a cash election (the
"Stockholder Cash Election") in the form it would be permitted to make if
it were a holder of Wyndham Common Stock at the Effective Time. On or
before the date that is two weeks before the Intended Mailing Date,
Stockholder shall deliver the Stockholder Cash Election to Purchaser.
1.2 Closing. Subject to the terms and conditions of this Agreement, the
closing of the purchase and sale of the Stockholder Shares (the "Closing")
shall take place (a) at the offices of Goodwin, Procter & Hoar llp, Exchange
Place, Boston, Massachusetts, at 10:00 a.m., local time, on the day on which
the Closing of the Merger is to occur, assuming the last of the conditions set
forth in Article 3 shall have been fulfilled or waived in accordance herewith,
or (b) at such other time, date or place as the parties hereto may agree. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date." At the Closing, Purchaser shall transfer, assign and deliver to
Stockholder the Paired Share Consideration, the Unpaired Share Consideration
and, if applicable, any cash due under Section 1.1(a), against delivery to
Purchaser of certificates for the Stockholder Shares so purchased, duly
endorsed or accompanied by stock powers duly executed in blank. If
certificates, duly endorsed or accompanied by stock powers duly executed in
blank, for less than all of the Stockholder Shares are delivered to Purchaser
at the Closing, Purchaser may purchase the Stockholder Shares for which
certificates, duly endorsed or accompanied by stock powers duly executed in
blank, have been so delivered. At the Closing, each of Purchaser and
Stockholder shall also execute and deliver to the other the Registration
Rights Agreement attached hereto as Exhibit B. In addition, Purchaser
covenants that, on or before the Closing, Purchaser shall have taken all
actions necessary such that the representations and warranties set forth in
Section 2(a) of such agreement are true and correct at Closing.
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ARTICLE 2.
Representations, Warranties and Covenants
2.1 Representations and Warranties of Purchaser. Purchaser hereby represents
and warrants to Stockholder as follows:
(a) Organization and Good Standing. On the date hereof, Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Virginia and has all necessary corporate power and
authority to carry on its business and to own and lease the assets which it
owns and leases. At the Closing, Purchaser will be a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and will have all necessary corporate power and authority
to carry on its business and to own and lease the assets which it owns and
leases.
(b) Power and Authorization. Purchaser has the legal right, power and
authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by Purchaser of this
Agreement have been duly authorized by all necessary corporate action on
the part of Purchaser. This Agreement constitutes the legal, valid and
binding obligation of Purchaser, enforceable against it in accordance with
its terms. The Paired Shares and shares of Unpaired Preferred Stock issued
to the Stockholders at the Closing will, when issued, be duly authorized,
validly issued, fully paid and non-assessable.
(c) SEC Documents. Purchaser has filed all required forms, reports and
documents with the Securities and Exchange Commission (the "SEC") since
December 31, 1995 (collectively, the "Purchaser SEC Reports"), which were
required to be filed after that date pursuant to the applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder (collectively,
the "Securities Laws"). The Purchaser SEC Reports were filed with the SEC
in a timely manner. As of their respective dates, the Purchaser SEC Reports
(i) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in
light of the circumstances under which they were made, not misleading. Each
of the consolidated balance sheets of Purchaser included in or incorporated
by reference into the Purchaser SEC Reports (including the related notes
and schedules) fairly presents the consolidated financial position of
Purchaser and the Purchaser Subsidiaries as of its date and each of the
consolidated statements of income, retained earnings and cash flows of
Purchaser included in or incorporated by reference into the Purchaser SEC
Reports (including any related notes and schedules) fairly presents the
results of operations, retained earnings or cash flows, as the case may be,
of Purchaser and the Purchaser Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments), in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by Form 10-Q pursuant to Section 13 or 15(d) of
the Exchange Act.
(d) Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by Purchaser nor the consummation of the
transactions contemplated hereby will (i) conflict with or result in any
breach of any provision of the certificate of incorporation or bylaws of
Purchaser, (ii) require any consent, approval, authorization or permit of,
or filing with or notification to, any governmental or regulatory
authority, except (A) as may be required pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (B) as may
be required under the "blue sky," takeover or securities laws of various
states, or (C) where the failure to obtain such consent, approval,
authorization or permit, or to make such filing or notification, would not
reasonably be expected to have a material adverse effect on the business,
results of operations or financial condition of Purchaser and the Purchaser
Subsidiaries taken as a whole (a "Purchaser Material Adverse Effect"),
(iii) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or
provisions of any note, license, agreement or other instrument or
obligation to which Purchaser or any of
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the Purchaser Subsidiaries is a party or by which Purchaser or any of the
Purchaser Subsidiaries or any of their respective assets may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) as to which requisite waivers or consents have been obtained
or which, in the aggregate, would not reasonably be expected to have a
Purchaser Material Adverse Effect, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Purchaser,
any of the Purchaser Subsidiaries or any of their respective assets, except
for violations which would not reasonably be expected to have a Purchaser
Material Adverse Effect.
(e) No Brokers. Neither Purchaser nor any of the Purchaser Subsidiaries
has entered into any contract, arrangement or understanding with any person
or firm which may result in the obligation of such entity or Stockholder to
pay any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or
consummation of the transactions contemplated hereby, except that Purchaser
has engaged PaineWebber Incorporated ("PaineWebber") and Salomon Brothers
Inc. ("Salomon Brothers") as its financial advisors in connection with the
transactions contemplated by this Agreement and is responsible for all
fees, commissions, and like payments arising from such engagements. Other
than the foregoing arrangements, Wyndham's arrangements with Smith Barney
Inc. ("Smith Barney"), the Special Committee of the Board of Directors of
Wyndham's arrangements with Merrill Lynch & Co. ("Merrill Lynch"), and the
Stockholders' arrangements with Montgomery Securities, Purchaser is not
aware of any claim for payment of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to this Agreement or consummation of the transactions contemplated
hereby.
2.2 Representations and Warranties of Stockholder. Stockholder hereby
represents and warrants to Purchaser as follows:
(a) Ownership of Shares. Stockholder (and, if applicable, any Affiliate
to which Stockholder has transferred any Stockholder Shares pursuant to
Section 5.14 hereof) owns of record or beneficially the Stockholder Shares
and such shares constitute all of the shares of Common Stock owned of
record or beneficially by such Stockholder. Stockholder will not sell or
transfer any Stockholder Shares except as permitted by Section 5.14 hereof
or purchase or acquire any other shares of Purchaser's stock prior to the
Closing. Upon transfer and delivery by Stockholder to Purchaser of the
Stockholder Shares owned by Stockholder pursuant to this Agreement,
Purchaser shall acquire good and marketable title to such shares, free and
clear of all claims, liens, charges, proxies (other than any agreement with
Purchaser), encumbrances and security interests (other than any created by
Purchaser). Wyndham has consented to the transactions contemplated by this
Agreement and has waived any and all rights it may have with respect to
such transactions, including any rights under the Stockholders' Agreement
dated May 24, 1996 among Wyndham and certain of its Stockholders.
(b) Organization and Good Standing. Stockholder is duly organized,
validly existing and in good standing under the laws of the State of Texas.
(c) Power and Authorization. Stockholder has full legal right, power and
authority to enter into and perform its obligations under this Agreement
and the other agreements and documents required to be delivered by it
hereunder. The execution, delivery and performance by Stockholder of this
Agreement have been duly authorized by all necessary action on the part of
Stockholder. This Agreement constitutes the legal, valid and binding
obligation of Stockholder, enforceable against it in accordance with its
terms.
(d) Consents and Approvals: No Violation. Neither the execution and
delivery of this Agreement by Stockholder nor the consummation by
Stockholder of the transactions contemplated hereby will (i) conflict with
any of the organizational documents of Stockholder, (ii) require any
consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except (A) as
may be required pursuant to the HSR Act, (B) as may be required under the
"blue sky," takeover or securities laws of various states, or (C) where the
failure to obtain such consent, approval, authorization or permit, or to
make such filing or notification, could not have a material adverse effect
on the transactions contemplated hereby or the likelihood of their
occurring (a "Stockholder Material Adverse Effect"), (iii)
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result in a default (or give rise to any right of termination, cancellation
or acceleration) under any of the terms, conditions or provisions of any
note, license, agreement or other instrument or obligation to which
Stockholder or any of its assets may be bound, except for such defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained or which, in the aggregate, could
not have a Stockholder Material Adverse Effect, or (iv) violate any order,
writ, injunction, decree, statute, rule or regulation applicable to
Stockholder or any of its assets, except for violations which in the
aggregate could not have a Stockholder Material Adverse Effect.
(e) No Brokers. Stockholder has not entered into any contract,
arrangement or understanding with any person or firm which may result in
the obligation of such entity or Purchaser to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or consummation of the
transactions contemplated hereby, except that Stockholder has engaged
Montgomery Securities as Stockholder's financial advisor in connection with
the transactions contemplated by this Agreement (and is responsible for all
fees, commissions and like payments arising from such engagement). Other
than the foregoing arrangements, Purchaser's arrangements with PaineWebber
and Salomon Brothers, and Wyndham's arrangements with Smith Barney and
Merrill Lynch, Stockholder is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or consummation
of the transactions contemplated hereby.
(f) Tax Matters. There is no plan or intention of Stockholder, and to the
best of the knowledge of Stockholder there is no intention on the part of
the other stockholders of Wyndham, to sell, exchange, or otherwise dispose
of a number of Paired Shares or Unpaired Preferred Shares received in the
Merger or pursuant to this Agreement that would reduce the Wyndham
stockholders' ownership of Purchaser Stock (including Unpaired Preferred
Shares and that portion of Paired Shares consisting of Purchaser Stock) to
a number of shares having a value, as of the effective date of the Merger,
of less than 50 percent of the value of all of the formerly outstanding
stock of Wyndham as of the same date. For purposes of this representation,
shares of Wyndham Common Stock exchanged for cash or other property
(including Paired Shares to the extent they consist of shares in Operating
Company), exchanged for cash in lieu of fractional Paired Shares or
fractional Unpaired Preferred Shares will be treated as outstanding Wyndham
Common Stock on the date of the transaction. Moreover, shares of Wyndham
Common Stock and Paired Shares (to the extent they consist of shares in
Purchaser) and Unpaired Preferred Shares held by Wyndham stockholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the
transaction will be considered in making this representation.
2.3 Covenants of Purchaser and Stockholder.
Stockholder agrees to cooperate with Purchaser after the date hereof in
determining and investigating whether there exist any circumstances which
could cause Purchaser to be "closely held" within the meaning of Section
856(a) of the Code or to derive or accrue or be allocated any amount that is
treated as other than "rents from real property" by reason of Section
856(d)(2)(B) of the Code and without limiting the foregoing agrees to provide
to Purchaser as promptly as practical all relevant information and documents
(or, with respect to information and documents which Stockholder does not have
or own, use commercially reasonable efforts to obtain and provide them to
Purchaser as promptly as practical) which Purchaser reasonably requests in
connection with such determination and investigation. Purchaser in turn agrees
to cooperate with Stockholder after the date hereof in connection with such
determination and investigation and without limiting the foregoing agrees to
discuss with Stockholder, at mutually convenient times, the facts and
circumstances which Purchaser believes are relevant to any such determination.
ARTICLE 3.
Conditions Precedent
3.1 Mutual Condition. The obligations of Purchaser and Stockholder to enter
into and consummate the transactions contemplated hereby are subject to the
satisfaction or waiver by the parties to the Merger Agreement
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of the conditions set forth in Section 9.1 of the Merger Agreement and to the
approval by the stockholders of Operating Company, if required, of the
issuance of the Unpaired Preferred Stock as contemplated by this Agreement.
3.2. Certain Conditions Precedent to Purchaser's Obligations. The
obligations of Purchaser to enter into and consummate the transactions
contemplated hereby are subject to the fulfillment (or waiver in writing by
Purchaser in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of Stockholder contained in this
Agreement shall be true and correct on and as of the date hereof and in all
material respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date;
(b) Stockholder shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement to be
performed or complied with by Stockholder on or prior to the Closing Date;
(c) Stockholder shall have delivered to Purchaser certificates, dated the
Closing Date and signed by a duly authorized officer of Stockholder, to the
foregoing effect;
(d) Stockholder shall have delivered to Purchaser an opinion of counsel
to Stockholder as to the matters set forth in Sections 2.2(a), (b), (c) and
(d) hereof (provided that with respect to Sections 2.2(a) and (d) the
opinion need only relate to such factual matters as to which such counsel
has knowledge);
(e) the conditions to the obligations of Purchaser to effect the Merger
set forth in Section 9.3 of the Merger Agreement (other than Section 9.3(e)
thereof) shall have been satisfied or waived; and
(f) Stockholder shall have delivered a certificate as to its non-foreign
status in accordance with the regulations under Section 1445 of the Code.
3.3 Certain Conditions Precedent to the Stockholder's Obligations. The
obligation of Stockholder to enter into and complete the transactions
contemplated hereby is subject to the fulfillment (or waiver in writing by
Stockholder in its sole discretion) on or prior to the Closing Date of the
conditions that:
(a) the representations and warranties of Purchaser contained in the
second sentence of Section 2.1(a) and in Sections 2.1(b), (c), (d) and (e)
in this Agreement shall be true and correct on and as of the date hereof
and in all material respects on and as of the Closing Date with the same
force and effect as though made on and as of the Closing Date;
(b) Purchaser shall have performed and complied in all material respects
with all covenants and agreements required by this Agreement to be
performed or complied with by Purchaser on or prior to the Closing Date;
(c) Purchaser shall have delivered to Stockholder a certificate, dated
the Closing Date and signed by a duly authorized officer of Purchaser, to
the foregoing effect;
(d) Purchaser shall have delivered to Stockholder an opinion of counsel
to Purchaser as to the matters set forth in the second sentence of Section
2.1(a) and in Sections 2.1(b) and (d) hereof (provided that with respect to
Section 2.1(d) the opinion need only relate to agreements as to which such
counsel has knowledge);
(e) Goodwin, Procter & Hoar llp shall have delivered an opinion addressed
to Stockholder substantially to the same effect as the opinion of Goodwin,
Procter & Hoar llp addressed to Stockholder and delivered to it on the date
hereof; and
(f) the conditions to the obligations of Wyndham to effect the Merger set
forth in Section 9.2 of the Merger Agreement (other than Section 9.2(e)
thereof) shall have been satisfied or waived.
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ARTICLE 4.
Indemnification
4.1 Indemnification by Stockholder. Stockholder shall indemnify and hold
Purchaser and its officers, directors and shareholders harmless against and in
respect of any and all losses, costs, expenses, claims, damages, obligations
and liabilities, including interest, costs of investigation, penalties and
reasonable attorneys' fees and disbursements ("Damages") which Purchaser or
any such person may suffer, incur or become subject to arising out of, based
upon or otherwise in respect of any inaccuracy in or breach of any
representation or warranty of Stockholder made in or pursuant to this
Agreement or any breach or nonfulfillment of any covenant or obligation of
Stockholder contained in this Agreement.
4.2 Indemnification by Purchaser. Purchaser shall indemnify and hold
Stockholder and its officers, directors and partners harmless against and in
respect of any and all Damages which Stockholder or any such person may
suffer, incur or become subject to arising out of, based upon or otherwise in
respect of any inaccuracy in or breach of any representation or warranty of
Purchaser made in or pursuant to Sections 2.1(a), (b), (d) and (e) of this
Agreement or any breach or nonfulfillment of any covenant or obligation of
Purchaser contained in this Agreement.
4.3 Third Party Claims.
(a) Each party shall promptly notify the other of the assertion by any
third party of any claim with respect to which the indemnification set
forth in this Section relates. The indemnifying party shall have the right,
upon notice to the indemnified party within ten (10) business days after
the receipt of any such notice, to undertake the defense of and, with the
consent of the indemnified party (which consent shall not unreasonably be
withheld), to settle or compromise such claim. The failure of the
indemnifying party to give such notice and to undertake the defense of or
to settle or compromise such a claim shall constitute a waiver of the
indemnifying party's rights under this Section 4.3(a) and in the absence of
gross negligence or willful misconduct on the part of the indemnified party
shall preclude the indemnifying party from disputing the manner in which
the indemnified party may conduct the defense of such claim or the
reasonableness of any amount paid by the indemnified party in satisfaction
of such claim.
(b) The election by the indemnifying party, pursuant to Section 4.3(a),
to undertake the defense of a third party claim shall not preclude the
party against which such claim has been made also from participating or
continuing to participate in such defense, so long as such party bears its
own legal fees and expenses for so doing.
ARTICLE 5.
Miscellaneous
5.1 Further Action. Stockholder and Purchaser shall, subject to the
fulfillment at or before the Closing Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may reasonably be required to effect the
transactions contemplated hereby. Purchaser agrees that following consummation
of the Business Combination it shall use reasonable best efforts to cause
Operating Company to take such actions as this Agreement contemplates that
Operating Company will take in connection with the transactions contemplated
hereby.
5.2 Parties in Interest; Assignment. Neither of the parties to this
Agreement may assign any of its rights or obligations under this Agreement
without the prior written consent of the other party hereto provided, however,
that Stockholder may assign some or all of the Stockholder Shares and its
rights hereunder with respect to such shares if and to the extent and in the
manner specifically permitted by Section 2.2(a) hereof. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
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5.3 Entire Agreement; Amendments; Waiver. This Agreement, the Merger
Agreement, the Proxy Agreement and the Standstill Agreement each contain the
entire understanding between Stockholder and Purchaser with respect to its
specific subject matter. This Agreement may be amended only by written
instrument duly executed by the parties hereto. No party may waive any term,
provision, covenant or restriction of this Agreement except by a duly signed
writing referring to the specific provision to be waived.
5.4 Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be delivered personally or transmitted
by telex, fax or telegram, to the respective parties as follows:
(a) If to Stockholder, to it at:
CF Securities, LP.
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attention: Ms. Susan T. Groenteman
with copies to:
Crow Family Holdings
2001 Ross Avenue
Suite 3200
Dallas, Texas 75201
Attention: M. Kevin Bryant, Esq.
and:
Vinson & Elkins L.L.P.
2001 Ross Avenue
Suite 3700
Dallas, Texas 75201
Attention: Derek R. McClain, Esq.
(b) If to Purchaser, to it at:
Patriot American Hospitality, Inc.
3030 LBJ Freeway
Suite 1500
Dallas, Texas 75234
Attention: President
with a copy to:
Goodwin, Procter & Hoar llp
Exchange Place
Boston, Massachusetts 02109
Attention: Gilbert G. Menna, P.C.
or to such other address as any party may have furnished to the others in
writing.
5.5 Governing Law. This Agreement will be governed by and construed in
accordance with the internal laws of the State of Delaware.
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5.6 Survival. All representations, warranties, covenants and agreements of
the parties hereto shall survive indefinitely after the Closing, except those
contained in Section 2.1(c), which shall not survive the Closing.
5.7 Termination.
(a) This Agreement may be terminated and the transactions contemplated
herein may be abandoned at any time prior to the Closing:
(i) by Purchaser or Stockholder, if the Merger Agreement shall have
been terminated;
(ii) by mutual consent of Purchaser and Stockholder;
(iii) by Stockholder, if Purchaser has failed to perform in any
material respect any of its respective obligations required to be
performed by it under this Agreement and such failure continues for
more than 30 days after notice unless failure to so perform has been
caused by or results from a breach of this Agreement by Stockholder;
(iv) by Purchaser, if Stockholder shall have failed to perform in any
material respect any of the obligations required to be performed by
Stockholder under this Agreement and such failure continues for more
than 30 days after notice unless failure to so perform has been caused
by or results from a breach of this Agreement by Purchaser;
(v) by Stockholder, if the Operating Company Ratification Agreement
(as defined in the Merger Agreement) is not executed and delivered by
Operating Company on or prior to the 20th business day following the
date on which the Business Combination is effected; or
(vi) by Purchaser, at any time (including on the Closing Date) after
the date which is five days following the date on which the Business
Combination becomes effective, if Purchaser shall reasonably conclude
that, as a result of circumstances discovered in connection with the
investigation referenced in Section 2.3 hereof or matters or
information obtained in any other manner, there is a realistic
possibility (as such term is defined in Treasury Regulation (S)1.6694-
2(b)) that the amount of cash required to be paid by Purchaser pursuant
to the third sentence of Section 1.1(a) hereof would exceed Twenty-Five
Million Dollars ($25,000,000) (a "Realistic Possibility"). If Purchaser
wishes to exercise its right to terminate this Agreement pursuant to
this Section 5.7(a)(vi), it shall send a notice to Stockholder
specifying in reasonable detail the facts and circumstances, including,
if applicable, those which relate to the attribution of stock
ownership, which have caused Purchaser to conclude that there is a
Realistic Possibility, such notice to be sent on or prior to the date
(the "Notice Date") which is at least eleven business days before the
scheduled date for Wyndham's stockholders' meeting to be held to
consider and act upon the Merger, provided, however, that Purchaser may
send such a notice, or amend or supplement any notice previously sent,
at any time prior to the Closing to reflect any change in circumstances
or any additional information obtained or learned by Purchaser within
five business days before, or at any time after, the Notice Date (any
notice, amendment or supplement sent pursuant to this sentence shall be
referred to herein as a "Preliminary Notice"). If Stockholder has not
solved or otherwise addressed by the Final Notice Date (as hereinafter
defined), with respect to any Preliminary Notice, the circumstances,
matters or information reflected in any such Preliminary Notice so that
Purchaser no longer reasonably concludes that there is a Realistic
Possibility, then Purchaser may at any time thereafter send
Stockholder, or deliver to Stockholder at the Closing, an additional
notice (the "Final Notice") terminating this Agreement, and any such
Final Notice shall be effective when sent or delivered. The "Final
Notice Date" with respect to any Preliminary Notice shall be (x) the
date which is ten business days after the date on which Purchaser sends
such Preliminary Notice pursuant to this Section 5.7(a)(vi); provided,
however, that if such Preliminary Notice is sent later than the Notice
Date, the Final Notice Date shall be the later of (y) the date which is
five business days after the date on which the Purchaser sends such
Preliminary Notice or (z) the earlier of (i) the business day prior to
the date scheduled for the Closing or (ii) the Final Notice Date
determined pursuant to clause (x) above; provided further, however,
that if the Final Notice Date shall be determined by using clause (y),
the scheduled date for the Closing shall be postponed until the
business day following the Final Notice Date, notwithstanding anything
in this Agreement to the contrary.
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(b) A party terminating this Agreement pursuant to this Section 5.7 shall
give written notice thereof to each other party hereto, whereupon this
Agreement shall terminate and the transactions contemplated hereby shall be
abandoned without further action by any party; provided, however, that if
such termination is by Purchaser pursuant to Section 5.7(a)(iv) or if such
termination is by Stockholder pursuant to Section 5.7(a)(iii), nothing
herein shall affect the non-breaching party's right to damages on account
of such other party's breach.
5.8 Remedies. Stockholder acknowledge that the Stockholder Shares are unique
and that Purchaser will not have an adequate remedy at law if Stockholder
fails to perform any of its obligations hereunder, and Stockholder agrees that
Purchaser shall have the right, in addition to any other right it has, to
specific performance or equitable relief by way of injunction if Stockholder
fails to perform any of its obligations hereunder. Any requirements for the
securing or posting of any bond with respect to such remedy are hereby waived.
Stockholder agrees that its sole remedy after the Closing concerning the
performance or nonperformance by Purchaser under this Agreement or in any way
related to the subject matter of this Agreement, and regardless of whether a
claim is based in contract or in tort, shall be indemnification pursuant to
the provisions of Section 4 hereof and claims for damages.
5.9 Counterparts; Headings. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same document. The article and
section headings contained herein are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement.
5.10 Expenses. Each of Purchaser and Stockholder shall pay the fees and
expenses it incurs in connection with this Agreement, other than as a result
of the breach hereof by the other party hereto.
5.11 Certain Definitions. For purposes of the Agreement:
(a) "beneficially owned" shall have the meaning set forth in Rule 13d-3
promulgated under the Exchange Act, as such Rule is in effect on the date
hereof.
(b) "business day" means any day which is neither a Saturday or Sunday
nor a legal holiday on which banks are authorized or required to be closed
in New York, New York or Dallas, Texas.
(c) As used in this Agreement, the word "Subsidiary" or "Subsidiaries"
when used with respect to any party means any corporation, partnership,
joint venture, business trust or other entity, of which such party directly
or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a
majority of the board of directors or others performing similar functions
with respect to such corporation or other organization.
(d) As used in this Agreement, the word "person" means an individual, a
corporation, a partnership, an association, a joint-stock company, a trust,
a limited liability company, any unincorporated organization or any other
entity.
(e) As used in this Agreement, the word "affiliate" shall have the
meaning set forth in Rule 12b-2 of the Exchange Act.
5.12 Condition Subsequent. If for any reason the Merger does not become
effective on the Closing Date or the first business day thereafter, the
transactions contemplated hereby shall be automatically rescinded, the parties
shall return any consideration they received to the parties who provided such
consideration (with duly executed stock powers, if appropriate), and this
Agreement shall be deemed null and void.
5.13 Consent by Wyndham. Wyndham hereby consents to the execution of this
Agreement and to the transactions contemplated hereby and hereby waives any
rights it may have with respect to the transactions contemplated hereby under
the Stockholders Agreement dated May 24, 1996 among Wyndham and the
stockholders named therein or any other agreement or document.
D-11
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5.14 Transfers to Affiliates. Notwithstanding the transfer restrictions
contained in Section 2.2(a) hereof, CF Securities, L.P. may transfer any
Stockholder Shares to an Affiliate (as defined in that certain Standstill
Agreement dated the date hereof by and between Purchaser and CF Securities,
L.P. (the "Standstill Agreement")); provided, that prior to any such transfer
any such Affiliate shall have executed and delivered an agreement with
Purchaser dated the date of the transfer pursuant to which such Affiliate
agrees to be bound by all of the terms and conditions of, and makes, as of a
time immediately prior to such transfer, each of the representations and
warranties contained in (applied to such Affiliate as if such Affiliate were
CF Securities L.P. for purposes thereof), this Agreement, the Standstill
Agreement, the Proxy Agreement and that certain Voting Agreement dated the
date hereof by and between Purchaser and CF Securities, L.P. (the "Voting
Agreement"); provided further, that no such transfer shall relieve CF
Securities, L.P. of any obligations in this Agreement, the Standstill
Agreement, the Proxy Agreement or the Voting Agreement, and CF Securities,
L.P. shall continue to be bound by such agreements as if such transfer had not
occurred.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
D-12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first written.
PATRIOT AMERICAN HOSPITALITY, INC.
/s/ Paul A. Nussbaum
By: _________________________________
Name: Paul A. Nussbaum
Title: Chairman and Chief
Executive Officer
CF SECURITIES, L.P.
Mill Springs Holding, Inc.
/s/ Harlan R. Crow
By: _________________________________
Name: Harlan R. Crow
Title: Chief Executive Officer
CONSENTED TO FOR THE PURPOSES OF
SECTION 5.13:
WYNDHAM HOTEL CORPORATION
/s/ Carla S. Moreland
By: _________________________________
Name: Carla S. Moreland
Title: Vice President--General
Counsel and Secretary
D-13
<PAGE>
ANNEX E
FORM OF AMENDMENT NO. 3 TO
PAIRING AGREEMENT
THIS AMENDMENT to the Pairing Agreement dated as of February 17, 1983 and
amended on February 18, 1988 and on July 1, 1997 (the "Pairing Agreement"),
between PATRIOT AMERICAN HOSPITALITY, INC. (formerly California Jockey Club,
which was formerly Bay Meadows Realty Enterprises, Inc.), a Delaware
corporation ("Realty"), and PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
(formerly Bay Meadows Operating Company), a Delaware corporation ("Operating
Company").
WHEREAS, Patriot American Hospitality, Inc., a Virginia corporation ("Old
Patriot"), and Wyndham Hotel Corporation, a Delaware corporation ("Wyndham"),
entered into an Agreement and Plan of Merger, dated as of April 14, 1997, as
ratified by Realty and Operating Company pursuant to Ratification Agreements
dated July 24, 1997, (collectively, as the same may be amended from time to
time, the "Merger Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the merger of Wyndham with and into Realty (as
successor by merger to Old Patriot) with Realty as the surviving corporation
(the "Merger"); and
WHEREAS, CF Securities, L.P., a Texas limited partnership ("CF Securities"),
and Old Patriot entered into a Stock Purchase Agreement dated as of April 14,
1997 (the "Stock Purchase Agreement"), which provides for CF Securities to
sell all of the shares of common stock, par value $.01 per share, of Wyndham
(the "Wyndham Common Stock") owned by CF Securities to Realty and Operating
Company, and to receive in exchange therefor, in accordance with the terms of
the Stock Purchase Agreement, a combination of (i) shares of Realty Common
Stock and Operating Company Common Shares, which shares will be paired, (ii)
shares of Series A Convertible Preferred Stock, par value $.01 per share, of
Realty, which shares (a) shall not be paired with shares of any class or
series of stock of Operating Company and (b) shall be convertible into paired
shares of Realty Common Stock and Operating Company Common Shares under
certain circumstances, and (iii) cash; and
WHEREAS, pursuant to and in compliance with Section 9 of the Pairing
Agreement, Realty and Operating Company desire to amend the Pairing Agreement
to provide for the issuance of shares of any class or series of capital stock,
other than Realty Common Stock or Operating Company Shares, without effective
provision for the simultaneous issuance or transfer of the same number of
shares of the same class or series of capital stock of the other company and
without effective provision for the pairing of such shares, as set forth in
this Amendment.
WHEREAS, to assist Realty in qualifying and maintaining its status as a real
estate investment trust, the Amended and Restated Certificate of Incorporation
of Realty and the Amended and Restated Certificate of Incorporation of
Operating Company (collectively, the "New Charters") will provide that (i) no
Person (other than a Look-Through Entity) (as such terms are defined in the
New Charters) may Beneficially Own or Constructively Own (as such terms are
defined in the New Charters) shares of any class or series of common stock,
par value $.01 per share, or preferred stock, par value $.01 per share
(collectively, "Equity Stock"), of Realty or Operating Company in excess of
8.0% of the total outstanding shares of such class or series of Equity Stock
of Realty or Operating Company (the "Ownership Limit") and no Look-Through
Entity (as defined in the New Charters) shall Beneficially Own or
Constructively Own shares of Equity Stock in excess of 9.8% of the total
outstanding shares of such class or series of Equity Stock of Realty or
Operating Company (the "Look-Through Ownership Limit"), unless the Ownership
Limit or Look-Through Ownership Limit, as the case may be, is waived by the
Board of Directors of the relevant corporation, and that (ii) any Transfer (as
defined in the New Charters) that, if effective, would (a) result in any
Person Beneficially Owning or Constructively Owning shares of Equity Stock in
excess of the Ownership Limit or Look-Through Ownership Limit, as applicable,
(b) result in the shares of capital stock of Realty being beneficially owned
(within the meaning of Section 856(a)(5) of the Internal Revenue Code of 1986,
as amended (the "Code")) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (c) result in Realty being "closely held"
within the meaning of Section 856(h)
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<PAGE>
of the Code or (d) cause Realty to Constructively Own 10% or more of the
ownership interest in a tenant of the real property of Realty or a subsidiary
of Realty within the meaning of Section 856(d)(2)(B) of the Code
(collectively, the "Transfer Restrictions"), shall be void ab initio, and the
intended transferee shall acquire no right or interest in such shares of
Equity Stock; and
WHEREAS, the New Charters will each provide that any shares of any class or
series of Equity Stock of Realty or Operating Company that are Transferred to
a Person (other than a Look-Through Entity) in excess of the Ownership Limit
or to a Look-Through Entity in excess of the Look-Through Ownership Limit or
in violation of any of the Transfer Restrictions shall, subject to certain
provisions of the New Charters, be automatically converted into an equal
number of shares of excess stock, par value $.01 per share ("Excess Stock"),
of Realty or Operating Company, as the case may be, and shall be
simultaneously transferred to a trust (a "Trust") and registered in the name
of a trustee (a "Trustee") and that such Trust and Trustee shall be designated
by Realty and Operating Company in accordance with the Pairing Agreement.
NOW THEREFORE, in consideration of the mutual agreements set forth herein
and in the Pairing Agreement, the parties hereto agree as follows:
1. Section 8 of the Pairing Agreement is hereby deleted in its entirety
and is replaced with the following:
"8. Preferred Stock.
(a) Subject to the terms of the Cooperation Agreement dated as of
, 199 , between Realty and Operating Company (the "Cooperation
Agreement"), shares of capital stock of any class or series other than
Realty Common Stock, irrespective of whether such shares are
convertible into paired shares of Realty Common Stock and Operating
Company Common Shares, may be issued by Realty to any person without
effective provision for the simultaneous issuance or transfer to the
same person of the same number of shares of that same class or series
of capital stock of Operating Company and without effective provision
for the pairing of such shares of capital stock of Realty and Operating
Company, as the Board of Directors of Realty shall in its sole
discretion determine (any such shares of capital stock of any class or
series issued by Realty pursuant to this Section 8(a) are referred to
herein as "Unpaired Realty Shares").
(b) Subject to the terms of the Cooperation Agreement, shares of
capital stock of any class or series other than Operating Company
Common Shares, irrespective of whether such shares are convertible into
paired shares of Realty Common Stock and Operating Company Common
Shares, may be issued by Operating Company to any person without
effective provision for the simultaneous issuance or transfer to the
same person of the same number of shares of that same class or series
of capital stock of Realty and without effective provision for the
pairing of such shares of capital stock of Operating Company and
Realty, as the Board of Directors of Operating Company shall in its
sole discretion determine (any such shares of capital stock of any
class or series issued by Operating Company pursuant to this Section
8(b) together with Unpaired Realty Shares are referred to herein as
"Unpaired Shares").
(c) Unpaired Shares may be transferred on the books of Realty or
Operating Company, as the case may be, without a simultaneous transfer
to the same transferee of any shares of any other class or series of
capital stock of Realty or Operating Company."
2. Section 10 is hereby deleted in its entirety and is replaced with the
following:
"10. Exemption from the Ownership Limit. Operating Company agrees
that it shall not exempt any Person (as defined in the New Charters)
from the Ownership Limit or the Look-Through Ownership Limit (as
defined in the New Charters) pursuant to Section C of Article IV of the
New Charters without the prior written consent of Realty, which consent
shall not be unreasonably withheld."
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<PAGE>
3. This Amendment shall become effective as of the Effective Time of the
Merger (as defined in the Merger Agreement).
4. Subject to the Amendment set forth herein, the Pairing Agreement shall
continue to be in full force and effect.
5. Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Pairing Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
Patroit American Hospitality, Inc.,
a Delaware Corporation
By: _________________________________
Patroit American Hospitality
Operating Company, a Delaware
Corporation
By: _________________________________
E-3
<PAGE>
ANNEX F
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY, INC.
(The Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc.
will be substantially similar hereto)
Patriot American Hospitality, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies
as follows:
1. The name of the Corporation is Patriot American Hospitality, Inc. The
date of the filing of its original Certificate of Incorporation with the
Secretary of State of the State of Delaware was January 27, 1983 (the
"Original Certificate of Incorporation"). The name under which the
Corporation filed the Original Certificate of Incorporation was Bay Meadows
Realty Enterprises, Inc. The name of the Corporation was changed to
California Jockey Club on March 31, 1983, by way of amendment to the
Original Certificate of Incorporation. An Amended and Restated Certificate
of Incorporation (the "Second Certificate") was filed with the Secretary of
State of the State of Delaware on July 1, 1997, pursuant to which, among
other things, the name of the Corporation was changed to Patriot American
Hospitality, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Second
Certificate, was duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, as amended from time to time (the "DGCL"), and was
duly adopted by the stockholders of the Corporation in accordance with the
applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Second Certificate, as amended to date, is hereby
amended and restated in its entirety to provide as herein set forth in
full.
I.
Name
The name of the corporation is Patriot American Hospitality, Inc.
II.
Purposes
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
Capital Stock
The Corporation shall have the authority to issue 650,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), 750,000,000
shares of excess stock, par value $.01 per share (the "Excess
F-1
<PAGE>
Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one vote
on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock and
subject to any other provisions of this Certificate or any amendment hereto,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken by
the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only by
a unanimous written consent of the stockholders signed by each stockholder
entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall be
stated and expressed herein or in the resolution or resolutions providing for
the issue of shares of a particular series, and in such resolution or
resolutions providing for the issue of shares of such series, the Board of
Directors, or any duly authorized committee thereof, is expressly authorized
to fix or establish the basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation rights,
if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire or
redeem shares of such series as a sinking fund or otherwise, and the terms
and conditions of any such redemption;
d. The designation and maximum number of shares of such series issuable;
e. The right to vote, if any, with holders of shares of any other class
or series, either generally or as a condition to specified corporate
action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary liquidation;
h. The rights, if any, of the holders of shares of such series to convert
such shares into other classes of stock of the Corporation, or to exchange
such shares for other securities or assets, and the terms and conditions of
any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors and
not prohibited by law.
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms shall
have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the application of the constructive ownership rules of
Section 544 of the Internal Revenue Code of 1986, as
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<PAGE>
amended (the "Code"), as modified by Section 856(h)(l)(B) of the Code, and
(iii) the number of shares of Equity Stock which such Person is deemed to
beneficially own pursuant to Rule 13d-3 under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); provided however, that for the
purposes of calculating the foregoing, no share shall be counted more than
once. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Look-Through Entity" shall mean a Person that is either (i) a trust
described in Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code as modified by Section 856(h)(3) of the Code or (ii)
registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 9.8% of the number of outstanding shares of such
Equity Stock.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(e) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(e) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would (a) cause any Person (other than a Look-Through
Entity) to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit, (b) cause any Look-Through Entity to
Beneficially Own or Constructively Own shares of Equity Stock in excess of
the Look-Through Ownership Limit, (c) result in the capital stock of
Patriot REIT being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (d) result in Patriot REIT being "closely
held" within the meaning of Section 856(h) of the Code, or (e) cause
Patriot REIT to Constructively Own 10% or more of the ownership interest in
a tenant of Patriot REIT's or a Subsidiary's real property within the
meaning of Section 856(d)(2)(B) of the Code. Non-Transfer Events include
but are not limited to (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of shares of Equity
Stock or (ii) the sale, transfer, assignment or other disposition of
interests in any Person or of any securities or rights convertible into or
exchangeable for shares of Equity Stock that results in changes in
Beneficial Ownership or Constructive Ownership of shares of Equity Stock.
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"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 8.0% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding. "Pairing Agreement" shall mean the
Pairing Agreement, dated as of February 17, 1983, by and between Bay
Meadows Realty Enterprises, Inc. (the predecessor of California Jockey
Club) and Bay Meadows Operating Company, as amended from time to time in
accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Board of Directors determines that it is no longer in the best interests of
the Corporation to attempt to, or continue to, qualify under the Code as a
real estate investment trust (a "REIT").
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section D of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality
Operating Company (the "Operating Company") in accordance with the Pairing
Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person (other than a Look-Through Entity)
shall Beneficially Own or Constructively Own outstanding shares of Equity
Stock in excess of the Ownership Limit and no Look-Through Entity shall
Beneficially Own or Constructively Own outstanding shares of Equity Stock in
excess of the Look-Through Ownership Limit, (ii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Person (other
than a Look-Through Entity) Beneficially Owning or Constructively Owning
shares of Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
be otherwise Beneficially Owned or Constructively Owned by such Person in
excess of the Ownership Limit and the intended transferee shall acquire no
rights in such shares of Equity Stock, and (iii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Look-Through
Entity Beneficially Owning or Constructively Owning shares of Equity Stock in
excess of the Look-Through Ownership Limit shall be void ab initio as to the
Transfer of that number of shares of Equity Stock which would be otherwise
Beneficially Owned or Constructively Owned by such Look-Through Entity in
excess of the Look-Through Ownership Limit and the intended transferee shall
acquire no rights in such shares of Equity Stock.
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<PAGE>
b. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) that, if effective, would result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code shall be void
ab initio as to the Transfer of that number of shares of Equity Stock that
would cause the Corporation to be "closely held" within the meaning of Section
856(h) of the Code, and the intended transferee shall acquire no rights in
such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that, if effective, would cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of the Corporation or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of the Corporation (a "Subsidiary"), within the meaning of
Section 856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer
of that number of shares of Equity Stock that would cause the Corporation to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of the Corporation or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) that, if effective, would result in the shares of capital
stock of the Corporation being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code shall be void ab initio and the intended
transferee shall acquire no rights in such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction Termination
Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or such
lower percentages as required pursuant to regulations under the Code, of
the outstanding shares of any class or series of Equity Stock of the
Corporation shall, within 30 days after January 1 of each year, provide to
the Corporation a written statement or affidavit stating the name and
address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Stock Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional
information as the Corporation may request to ensure compliance with the
restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of shares
of Equity Stock and each Person (including the stockholder of record) who
is holding shares of Equity Stock for a Beneficial Owner or Constructive
Owner shall provide to the Corporation a written statement or affidavit
stating such information as the Corporation may request in order to
determine the Corporation's status as a REIT and to ensure compliance with
the Ownership Limit or the Look-Through Ownership Limit, as the case may
be.
4. Exception. The Board of Directors, upon receipt of a ruling from the
Internal Revenue Service or an opinion of counsel in each case to the effect
that the restrictions contained in Sections (C)(2)(b) through (d) of this
Article IV would not be violated, may exempt a Person from the Ownership Limit
or Look-Through Ownership Limit , provided that (A) the Board of Directors
obtains such representations and undertakings from such Person as are
reasonably necessary to ascertain that no Person's Beneficial Ownership or
Constructive Ownership of shares of Equity Stock will (i) result in the
capital stock of the Corporation being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (ii) result in the Corporation being
"closely held" within the meaning of Section 856(h) of the Code or (iii) cause
the Corporation to Constructively Own 10% or more of the ownership interests
in the real property of a tenant of the Corporation or a Subsidiary within the
meaning of Section 856(d)(2)(B) of the Code and (B) such Person agrees in
writing that any violation or attempted violation of the Ownership Limit or
Look-Through Ownership Limit will result in the conversion of such shares into
shares of Excess Stock pursuant to Section (D)(1) of this Article IV.
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5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than a Look-Through Entity)
would either Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit or such that any Person that is a Look-Through
Entity would either Beneficially Own or Constructively Own shares of Equity
Stock in excess of the Look-Through Ownership Limit, then, (i) except as
otherwise provided in Section (C)(4) of this Article IV, the purported
transferee shall be deemed to be a Prohibited Owner and shall acquire no right
or interest (or, in the case of a Non-Transfer Event, the Person holding
record title to the shares of Equity Stock Beneficially Owned or
Constructively Owned by such Beneficial Owner or Constructive Owner, shall
cease to own any right or interest) in such number of shares of Equity Stock
which would cause such Beneficial Owner or Constructive Owner to Beneficially
Own or Constructively Own shares of Equity Stock in excess of the Ownership
Limit or the Look-Through Ownership Limit, as the case may be, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit or the Look-
Through Ownership Limit, as the case may be, (rounded up to the nearest whole
share) shall be automatically converted into an equal number of shares of
Excess Stock and transferred to a Trust in accordance with Section (D)(4) of
this Article IV and (iii) the Prohibited Owner shall submit such number of
shares of Equity Stock to the Corporation for registration in the name of the
Trustee of the Trust. Such conversion into Excess Stock and transfer to a
Trust shall be effective as of the close of trading on the Trading Day prior
to the date of the Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would (i) result in the capital stock
of the Corporation being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of Section
856(a)(5) of the Code, (ii) result in the Corporation being "closely held"
within the meaning of Section 856(h) of the Code or (iii) cause the
Corporation to Constructively Own 10% or more of the ownership interest in a
tenant of the Corporation's or a Subsidiary's real property within the meaning
of Section 856(d)(2)(B) of the Code, then (x) the purported transferee shall
be deemed to be a Prohibited Owner and shall acquire no right or interest (or,
in the case of a Non-Transfer Event, the Person holding record title of the
shares of Equity Stock with respect to which such Non-Transfer Event occurred,
shall be deemed to be a Prohibited Owner and shall cease to own any right or
interest) in such number of shares of Equity Stock, the ownership of which by
such purported transferee or record holder would (A) result in the shares of
capital stock of the Corporation being beneficially owned (within the meaning
of Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (B) result in the Corporation being "closely
held" within the meaning of Section 856(h) of the Code or (C) cause the
Corporation to Constructively Own 10% or more of the ownership interests in a
tenant of the Corporation's or a Subsidiary's real property within the meaning
of Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock
(rounded up to the nearest whole share) shall be automatically converted into
an equal number of shares of Excess Stock and transferred to a Trust in
accordance with Section (D)(4) of this Article IV and (z) the Prohibited Owner
shall submit such number of shares of Equity Stock to the Corporation for
registration in the name of the Trustee of the Trust. Such conversion into
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-Transfer
Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or series
of Equity Stock into an equal number of shares of Excess Stock, such shares of
Equity Stock shall be automatically retired and canceled, without any action
required by the Board of Directors of the Corporation, and shall thereupon be
restored to the
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status of authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be reissued by
the Corporation as that particular class or series of Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at any
time determine in good faith that a Transfer has taken place in violation of
Section (C)(2) of this Article IV or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section (C)(2) of this Article IV, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or acquisition, including, but not
limited to, refusing to give effect to such Transfer on the stock transfer
books of the Corporation or instituting proceedings to enjoin such Transfer or
acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this Article
IV, or any Person who owns shares of Equity Stock that were converted into
shares of Excess Stock and transferred to a Trust pursuant to Sections (D)(1)
and (D)(4) of this Article IV, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's status as a REIT.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that results
in Excess Stock pursuant to Section (D)(1) of this Article IV, such Excess
Stock shall be automatically transferred to a Trust to be held for the
exclusive benefit of the Beneficiary. The Corporation and the Operating
Company shall name a Beneficiary for each Trust pursuant to the terms of the
Pairing Agreement. Any conversion of shares of Equity Stock into shares of
Excess Stock and transfer to a Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer or Non-Transfer
Event that results in the conversion. Shares of Excess Stock so held in trust
shall remain issued and outstanding shares of stock of the Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to both timing and amount) as may be declared
by the Board of Directors as shares of the class or series of Equity Stock
from which such Excess Stock was converted. The Trustee, as record holder of
the shares of Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold all such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any dividends or
distributions received by it (i) that are attributable to any shares of Equity
Stock that have been converted into shares of Excess Stock and (ii) the record
date of which was on or after the date that such shares were converted into
shares of Excess Stock. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock Beneficially Owned or Constructively Owned by the Person who, but for
the provisions of this Article IV, would Constructively Own or Beneficially
Own the shares of Equity Stock that were converted into shares of Excess
Stock; and, as soon as reasonably practicable following the Corporation's
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of the Corporation that is available for distribution to the holders of
such class or series of Equity Stock. The Trust shall distribute to the
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Prohibited Owner
shall not be entitled to receive amounts in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the conversion of the shares into
shares of Excess Stock, the price per share, if any, such Prohibited Owner
paid for the shares of Equity Stock (which, in the case of Equity Stock that
is paired, shall equal the price per paired share multiplied by the most
recent Valuation Percentage) and, in the case of a Non-Transfer Event or
Transfer in which the
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Prohibited Owner did not give value for such shares (e.g., if the shares were
received through a gift or devise) and which Non-Transfer Event or Transfer,
as the case may be, resulted in the conversion of the shares into shares of
Excess Stock, the price per share equal to the Market Price on the date of
such Non-Transfer Event or Transfer. Any remaining amount in such Trust shall
be distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to the
number of votes the holder would have, if such share of Excess Stock was a
share of Equity Stock of the same class or series from which such Excess Stock
was converted, on all matters submitted to a vote at any meeting of
stockholders. The holders of shares of Excess Stock converted from the same
class or series of Equity Stock shall vote together with the holders of such
Equity Stock as a single class on all such matters. The Trustee, as record
holder of the Excess Stock, shall be entitled to vote all shares of Excess
Stock. Any vote by a Prohibited Owner as a purported holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock have been converted into shares of Excess Stock shall, subject to
applicable law, be rescinded and shall be void ab initio with respect to such
shares of Excess Stock, and the Prohibited Owner shall be deemed to have
given, as of the close of trading on the Trading Day prior to the date of the
purported Transfer or Non-Transfer Event that results in the conversion of the
shares of Equity Stock into shares of Excess Stock and the transfer of such
shares to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV,
an irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to designate one
or more Permitted Transferees of any and all shares of Excess Stock if the
Corporation fails to exercise its option with respect to such shares pursuant
to Section (D)(10) hereof within the time period set forth therein. As soon as
practicable, but in an orderly fashion so as not to materially adversely
affect the Market Price of the shares of Excess Stock, the Trustee shall
designate any one or more Persons as Permitted Transferees; provided, however,
that (i) the Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
(which, in the case of paired Excess Stock, shall be determined based on the
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the restrictions
set forth in Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired into
shares of Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock acquired by the Permitted Transferee. Upon such transfer of the shares
of Excess Stock to the Permitted Transferee, such shares of Excess Stock shall
be automatically converted into an equal number of shares of Equity Stock of
the same class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal number
of shares of Equity Stock, such shares of Excess Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
the Corporation, and shall thereupon be restored to the status of authorized
but unissued shares of Excess Stock and may be reissued by the Corporation as
Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer books of
the Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to the shares of Excess Stock after making
payment to the Prohibited Owner pursuant to Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in Section
(C)(2) of this Article IV, such Transfer shall be void ab initio as to that
number of shares of Excess Stock that cause the violation of any such
restriction when such shares are converted into shares of Equity Stock (as
described in clause (b) above) and the purported Permitted Transferee shall be
deemed to be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock or Equity Stock.
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Such shares of Equity Stock shall be automatically re-converted into Excess
Stock and transferred to the Trust from which they were originally
Transferred. Such conversion and transfer to the Trust shall be effective as
of the close of trading on the Trading Day prior to the date of the Transfer
to the purported Permitted Transferee and the provisions of this Article IV
shall apply to such shares, including, without limitation, the provisions of
Sections (D)(8) through (D)(10) with respect to any future Transfer of such
shares by the Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be entitled
(following discovery of the shares of Excess Stock and subsequent designation
of the Permitted Transferee in accordance with Section (D)(8) of this Article
IV or following the acceptance of the offer to purchase such shares in
accordance with Section (D)(10) of this Article IV) to receive from the
Trustee following the sale or other disposition of such shares of Excess Stock
the lesser of (i) (a) in the case of a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in the conversion of such shares into shares of Excess Stock, the
price per share, if any, such Prohibited Owner paid for the shares of Equity
Stock (which, in the case of paired Excess Stock, shall be determined based on
the Valuation Percentage) and (b) in the case of a Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which Non-
Transfer Event or Transfer, as the case may be, resulted in the conversion of
such shares into shares of Excess Stock, the price per share equal to the
Market Price on the date of such Non-Transfer Event or Transfer or (ii) the
price per share (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) received by the Trustee from the
sale or other disposition of such shares of Excess Stock in accordance with
this Section (D)(9) or Section (D)(10) of this Article IV. Any amounts
received by the Trustee in respect of such shares of Excess Stock and in
excess of such amounts to be paid the Prohibited Owner pursuant to this
Section (D)(9) shall be distributed to the Beneficiary in accordance with the
provisions of Section (D)(8) of this Article IV. Each Beneficiary and
Prohibited Owner shall waive any and all claims that it may have against the
Trustee and the Trust arising out of the disposition of shares of Excess
Stock, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this Section
D of this Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be deemed
to have been offered for sale to the Corporation or its designee, at a price
per share equal to the lesser of (i) the price per share (which, in the case
of paired Excess Stock, shall be determined based on the Valuation Percentage)
in the transaction that created such shares of Excess Stock (or, in the case
of devise, gift or Non-Transfer Event, the Market Price at the time of such
devise, gift or Non-Transfer Event) or (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have
the right to accept such offer for a period of 90 days following the later of
(a) the date of the Non-Transfer Event or purported Transfer which results in
such shares of Excess Stock or (b) the date on which the Corporation
determines in good faith that a Transfer or Non-Transfer Event resulting in
shares of Excess Stock previously has occurred, if the Corporation does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section
(D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders by preservation of the Corporation's status as a REIT and to
ensure compliance with the requirements of the Pairing Agreement and with the
restrictions set forth in Section C of this Article IV.
G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the
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power to determine the application of the provisions of this Article IV with
respect to any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Wyndham
International, Inc. represented by this combined certificate are subject to
restrictions in the respective Amended and Restated Certificates of
Incorporation of each company which prohibit (a) any Person (other than a
Look-Through Entity) (as such terms are defined in the respective Amended
and Restated Certificates of Incorporation of each company) from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificates of Incorporation of each
company) in excess of 8.0% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificates of Incorporation of each company), (b)
any Look-Through Entity from Beneficially Owning or Constructively Owning
in excess of 9.8% of the number of outstanding shares of any class or
series of Equity Stock, (c) any Person from acquiring or maintaining any
ownership interest in the stock of either company that is inconsistent with
(i) the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to real estate investment trusts or (ii) Article IV of the
respective Amended and Restated Certificates of Incorporation of each
company and (d) any transfer of shares of any class or series of Equity
Stock of either company that are paired pursuant to the Pairing Agreement,
dated as of February 17, 1983, between the two companies, as amended from
time to time in accordance with the provisions thereof (the "Pairing
Agreement"), except in combination with an equal number of shares of the
other company in accordance with the respective Amended and Restated Bylaws
of each company and the Pairing Agreement, copies of which are on file with
the transfer agent named on the face hereof, and the holder of this
certificate by his acceptance hereof consents to be bound by such
restrictions.
Patriot American Hospitality, Inc. and Wyndham International, Inc. will
furnish without charge to each stockholder who so requests a copy of the
relevant provisions of the respective Amended and Restated Certificates of
Incorporation and the respective Amended and Restated Bylaws of each
company, a copy of the Pairing Agreement and a copy of the provisions
setting forth the designations, preferences, privileges and rights of each
class of stock or series thereof that each company is authorized to issue
and the qualifications, limitations and restrictions of such preferences
and/or rights. Any such request may be addressed to the Secretary of either
company or to the transfer agent named on the face hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall in no way affect the
validity of any other provision.
V.
Directors
A. General Powers. Except as otherwise expressly provided in this
Certificate, the property, affairs and business of the Corporation shall be
managed under the direction of the Board of Directors and, except as otherwise
expressly provided by law, the Bylaws or this Certificate, all of the powers
of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at such meeting and entitled to vote on the
election of directors, and shall hold office for a term expiring at the annual
meeting of stockholders held in the
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third year following the year of their election. The directors elected to each
class shall hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors. Subject to the rights, if any, of any series of
Preferred Stock to elect directors and to remove any director whom the holders
of any such stock have the right to elect, any director (including persons
elected by directors to fill vacancies in the Board of Directors) may be
removed from office (a) only with cause and (b) only by the affirmative vote
of the holders of at least 75% of the shares then entitled to vote at an
election of directors. At least 30 days prior to any meeting of stockholders
at which it is proposed that any director be removed from office, written
notice of such proposed removal shall be sent to the director whose removal
will be considered at the meeting. For purposes of this Certificate, "cause,"
with respect to the removal of any director shall mean only (i) conviction of
a felony, (ii) declaration of unsound mind by order of a court, (iii) gross
dereliction of duty, (iv) commission of any act involving moral turpitude or
(v) commission of an act that constitutes intentional misconduct or a knowing
violation of law if such action in either event results both in an improper
substantial personal benefit to such director and a material injury to the
Corporation.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
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F. Cooperation and Coordination with Patriot American Hospitality Operating
Company.
1. Definitions. For the purposes of this Section F Article V the following
terms shall have the meanings set forth below:
"Change of Control" shall mean the occurrence, with respect to either
OPCO or the Corporation, of any one of the following events (OPCO and the
Corporation being referred to below, as the case may be, as the "Company"):
a. any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company or any trustee fiduciary or other person or
entity holding securities under any employee benefit plan or trust of
the Company, together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to
vote generally in an election of the Company's Board of Directors (the
"Voting Securities") or (B) the then outstanding Paired Shares (in
either such case other than as a result of an acquisition of securities
directly from the Company); or
b. (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, solely as a result of their capacity as such,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, securities representing in the aggregate 50% or more of the
voting securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing
the number of Paired Shares or other Voting Securities outstanding,
increases (x) the proportionate number of Paired Shares beneficially owned
by any person to 50% or more of the Paired Shares then outstanding or (y)
the proportionate voting power represented by the Voting Securities
beneficially owned by any person to 50% or more of the combined voting
power of all then outstanding Voting Securities; provided, however, that if
any person referred to in clause (x) or (y) of this sentence shall
thereafter become the beneficial owner of any additional Paired Shares or
other Voting Securities (other than pursuant to a stock split, stock
dividend, or similar transaction) and whose ownership immediately
thereafter shall equal or exceed the amounts set forth in clauses (x) or
(y), then a "Change of Control" shall be deemed to have occurred for
purposes of the foregoing clause (i).
"Change in Patriot's Line of Business" shall mean an action by the
Corporation or Patriot OP (as hereinafter defined) with respect to the
Corporation's or Patriot OP's business that results in the consolidation
for financial reporting purposes of the results of operations of Patriot
with those of any business activity other than hospitality and hospitality-
related businesses, the gaming business and any other business in which the
Corporation or Patriot OP is engaged as of the date of this Certificate.
"Cooperation Agreement" shall mean the Cooperation Agreement to be
entered into by and between the Corporation and OPCO in connection with the
Merger.
"Issuance of Paired Equity" means a private or public offering, sale,
issuance or delivery of, or commitment or agreement to commit to offer,
sell, issue or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or
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any other debt or equity securities of OPCO (including, without limitation,
indebtedness having the right to vote, indebtedness convertible into any
equity of any class or any other securities) or limited partnership
interests or units of Patriot American Hospitality Operating Partnership,
L.P. ("OPCO OP")), or equity equivalents of either (including, without
limitation, stock appreciation rights), if it is contemplated that such
stock or other securities, or any securities underlying such stock or other
securities, would or could be paired with Patriot Stock (as defined in the
Merger Agreement) or any other securities of the Corporation, or, in the
case of limited partnership interests or units of OPCO OP, it is
contemplated that such interests or units would or could be economically
(or otherwise) "paired" (even if not pursuant to the Pairing Agreement)
with the limited partnership interests or units of Patriot American
Hospitality Partnership, L.P. ("Patriot OP"). Issuance of Paired Equity
shall also mean (A) the related issuance by the Corporation or Patriot OP
of the securities of the Corporation or Patriot OP which are paired with
the securities of OPCO or OPCO OP and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, repurchase or redemption of
shares, change in corporate structure or the like in which the outstanding
Paired Shares would be increased, decreased, changed into or exchanged for
a different number or kind of Paired Shares or other paired securities.
"Issuance of Unpaired Equity" means, in the case of OPCO, a public or
private offering, sale, issuance, delivery or commitment or agreement to
commit to offer, sell, issue or deliver (whether through the issuance or
granting of options, warrants, commitments, subscriptions, rights to
purchase or otherwise) any or all securities described in the immediately
preceding definition of "Issuance of Paired Equity" if it is contemplated
that such stock or other securities, and any securities underlying such
stock or other securities, would not or could not be paired with Patriot
Stock (as defined in the Merger Agreement) or any other securities of
Patriot or, in the case of limited partnership interests or units of OPCO
OP, it is contemplated that such interests or units would not or could not
economically (or otherwise) be "paired" with the limited partnership
interests or units of Patriot OP. "Issuance of Unpaired Equity" means, in
the case of the Corporation, a public or private offering, sale, issuance
or delivery of, or commitment or agreement to commit to offer, sell, issue
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), any stock of
any class or any other debt or equity securities of the Corporation
(including, without limitation, indebtedness having the right to vote and
indebtedness convertible into any equity of any class or any other
securities) or limited partnership interests or units of Patriot OP, or
equity equivalents of either (including, without limitation, stock
appreciation rights), if it is contemplated that such stock or other
securities, and any securities underlying such stock or other securities,
would not or could not be paired with OPCO Stock (as defined in the Merger
Agreement) or any other securities of OPCO or, in the case of limited
partnership interests or units of Patriot OP, it is contemplated that such
interests or units would not or could not be economically (or otherwise)
"paired" (even if not pursuant to the Pairing Agreement) with the limited
partnership interests or units of OPCO OP.
"Merger" shall mean the merger of the Corporation and Wyndham Hotel
Corporation, a Delaware corporation ("Wyndham"), pursuant to an Agreement
and Plan of Merger dated as of April 14, 1997 (the "Merger Agreement"), in
which the Corporation and Wyndham agreed to engage in a business
combination pursuant to which Wyndham will merge with and into the
Corporation with the Corporation being the surviving corporation.
"OPCO" shall mean Wyndham International, Inc. (formerly known as Patriot
American Hospitality Operating Company).
"Paired Shares" or "Paired Equity" shall mean, immediately following the
Merger, the shares of common stock, par value $.01 per share, of the
Corporation and the shares of common stock, par value $.01 per share, of
OPCO, which are paired and transferable and traded only in combination as a
single unit on the New York Stock Exchange (together, the "Paired Shares"
or "Paired Equity").
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2. Establishment of Cooperation Committee. The Corporation shall establish
with OPCO, as promptly as practicable following the closing of the Merger and
thereafter to continue in effect, a committee (the "Cooperation Committee")
consisting of (i) the Chairman of the Corporation's Board of Directors (who
shall be the Chairman of the Cooperation Committee), (ii) the Chairman of
OPCO's Board of Directors, (iii) a designee of the Corporation's Board of
Directors reasonably acceptable to OPCO (who shall serve at the pleasure of
the Corporation's Board of Directors and may be removed and replaced at any
time) and (iv) the President of OPCO. The Cooperation Committee will normally
consider and propose the agenda listing the matters to be considered at any
joint meeting of the Boards of Directors of the Corporation and OPCO, subject
to the right of a Board member to request consideration of additional matters.
The Cooperation Committee shall establish such procedures for the conduct of
its business as it shall deem appropriate from time to time.
3. Corporate Matters Categories. All matters to be considered by the
Corporation's Board of Directors, and all matters related thereto, except (i)
a Change in Patriot's Line of Business and (ii) Issuances of Paired Equity and
Issuances of Unpaired Equity, shall be classified into the most appropriate of
the following three categories:
a. Routine corporate governance matters, such as approval and retention
of independent accountants, the fixing of employee compensation and other
like matters (each, a "Category 1 Matter");
b. All other matters, other than a Change of Control and the removal of
the Chairman or Chief Executive Officer of the Corporation and, after the
third anniversary of the Merger, all other matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer
of the Corporation (each, a "Category 2 Matter"); and
c. The removal of the Chairman or Chief Executive officer of the
Corporation and, until the third anniversary of the Merger, any proposed
action by the Corporation that would result in a Change of Control (each, a
"Category 3 Matter").
4. Consideration of Corporate Matters.
a. At any meeting of the Corporation's Board of Directors (whether or not
held jointly with OPCO), the Corporation may (i) submit a Category 1 Matter to
the consideration and vote of the Corporation's Board of Directors,
irrespective of any consideration or vote by OPCO's Board of Directors, (ii)
submit a Category 2 Matter to the consideration and vote of the Corporation's
Board of Directors, with such matter requiring the majority vote of the
Corporation's Board of Directors for approval, and (iii) submit a Category 3
Matter to the consideration and vote of the Corporation's Board of Directors,
with such matter requiring a 66 2/3% vote of the Corporation's Board of
Directors for approval.
b. If the Corporation's Board of Directors at any such meeting that is not
held jointly with OPCO's Board of Directors shall have approved any Category 2
Matter or Category 3 Matter, the Corporation's Board of Directors shall
promptly provide notice (the "Board Notice") to OPCO in accordance with the
terms of the Cooperation Agreement of the occurrence of such meeting and the
Category 2 Matters or Category 3 Matters approved at such meeting. The
Cooperation Committee shall convene promptly (in any event, within ten (10)
business days) following the Corporation's Board of Directors meeting to
consider the actions taken by the Corporation's Board of Directors. If the
Cooperation Committee votes to approve the action taken by the Corporation's
Board of Directors with respect to any such matter, then the action authorized
by the Corporation's Board of Directors may be implemented without
consideration of such matter by OPCO's Board of Directors. If the Cooperation
Committee does not approve the action taken by the Corporation's Board of
Directors, OPCO's Board of Directors may then hold a meeting within fifteen
(15) business days following receipt of the Board Notice to consider and vote
upon the Category 2 Matters or Category 3 Matters approved by the
Corporation's Board of Directors and during such period the action authorized
by the Corporation's Board of Directors may not be implemented. In the event
that OPCO's Board of Directors approves at such a meeting the action taken by
the Corporation's Board of Directors or OPCO's Board of Directors does not
hold a meeting within fifteen (15) business days following receipt of the
Board Notice, the action authorized by the Corporation's Board of Directors
may thereafter be implemented.
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c. In the event OPCO's Board of Directors holds a meeting within fifteen
(15) business days following receipt of the Board Notice but does not approve
the action authorized by the Corporation's Board of Directors, the action
authorized by the Corporation's Board of Directors may not be implemented. In
such an event, the Cooperation Committee will convene promptly following the
meeting of OPCO's Board of Directors to consider the contrary positions of the
Corporation's Board of Directors and OPCO's Board of Directors and recommend a
resolution of such contrary positions in connection with the reconsideration
process described below (the "Reconsideration Process"). The Boards of
Directors of the Corporation and OPCO will then follow the Reconsideration
Process.
d. At any joint meeting of the Boards of Directors of the Corporation and
OPCO, in the event that the Corporation's Board of Directors approves a
Category 2 Matter or Category 3 Matter but OPCO's Board of Directors does not,
the action authorized by the Corporation's Board of Directors may not be
implemented. The Cooperation Committee shall convene immediately following the
joint meeting (unless a quorum of the Cooperation Committee is not present, in
which case the Cooperation Committee shall convene as soon as practicable
thereafter) to consider the votes of the Boards of Directors of the
Corporation and OPCO taken at such meeting. The Boards of Directors of the
Corporation and OPCO will then follow the Reconsideration Process described
below.
5. Reconsideration Process. Following any meeting of the Cooperation
Committee as described above, the Corporation's Board of Directors may
reconsider a Category 2 Matter at any subsequent meeting of the Corporation's
Board of Directors and, if the Corporation's Board of Directors approves such
matter by a majority vote at such subsequent meeting, then the Corporation's
Board of Directors may take the action contemplated by such matter regardless
of the position of OPCO's Board of Directors. Following any meeting of the
Cooperation Committee as described above, the Corporation's Board of Directors
may reconsider a Category 3 Matter at any subsequent meeting of the
Corporation's Board of Directors and, if the Corporation's Board of Directors
approves such matter by a 66 2/3% vote at such subsequent meeting, then the
Corporation's Board of Directors may take the action contemplated by such
matter (but only if OPCO's Board of Directors approves such matter by a
majority vote in the case of a Change of Control).
6. Change in Patriot's Line of Business. Until the third anniversary of the
Merger, any Change in Patriot's Line of Business shall require a majority vote
of OPCO's Board of Directors for approval.
7. Hotel Acquisitions Committee. The Corporation shall establish with OPCO,
as promptly as practicable following the closing of the Merger, and thereafter
continue in effect as provided herein, a hotel acquisitions committee (the
"Hotel Acquisitions Committee") to analyze, evaluate and consider potential
acquisitions by the Corporation of hotel properties and related assets (which
properties and related assets may consist of a portfolio of hotel properties
and related assets, and which may be acquired in any form, such as by merger,
asset acquisition or otherwise) ("Hotel Acquisitions"). The Hotel Acquisitions
Committee shall have the sole power and authority to authorize the Corporation
to enter into a binding agreement with respect to Hotel Acquisitions involving
a proposed purchase price (inclusive of any indebtedness to be assumed in
connection therewith) not exceeding (with respect to each Hotel Acquisition or
such series of Hotel Acquisitions as are reasonably likely to be considered an
integrated transaction) 5% of the total combined market capitalization of the
Corporation and OPCO (which for such purposes shall include, without
limitation, the aggregate number of outstanding shares of Paired Equity,
including equity securities of the Corporation or OPCO that are convertible
into Paired Equity, and including limited partnership interests or units of
Patriot OP or OPCO OP for which Paired Equity may be received upon redemption
of such interests or units by the holders thereof, in each case valued at the
market value for the underlying Paired Equity) computed as of the last
business day of the month immediately preceding the month during which such
Hotel Acquisition is to be authorized and based on the average closing sale
price of a Paired Share over the five (5) trading days immediately preceding
such business day. The members of the Hotel Acquisitions Committee shall be
determined as provided in the Cooperation Agreement. Notwithstanding the
foregoing, the Hotel Acquisitions Committee shall no longer have the power and
authority described herein on and after the third anniversary of the Merger.
8. Unpaired Equity Committee. The Unpaired Equity Committee shall be
established jointly by the Corporation and OPCO. As used herein, the "Unpaired
Equity Committee" means that committee whose members shall consist of (i) the
Chairman of the Corporation's Board of Directors, (ii) the Chairman of OPCO's
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Board of Directors, (iii) two designees of the Corporation from either the
Corporation's or OPCO's Board of Directors and (iv) one designee of OPCO from
either the Corporation's or OPCO's Board of Directors. Upon consummation of
the Merger, the members of the Unpaired Equity Committee shall consist of (i)
Paul A. Nussbaum until such time as he shall no longer serve as Chairman of
the Corporation's Board of Directors and, after such time, the Chairman of the
Corporation's Board of Directors, (ii) James D. Carreker until such time as he
shall no longer serve as the Chairman of OPCO's Board of Directors and, after
such time, the Chairman of OPCO's Board of Directors, (iii) two designees of
the Corporation from either the Corporation's or OPCO's Board of Directors and
(iv) one designee of OPCO from either the Corporation's or OPCO's Board of
Directors.
9. Authority to Issue Unpaired Equity. The Corporation shall have the right
to engage in an Issuance of Unpaired Equity only upon the affirmative vote of
a majority of the members of the Corporation's Board of Directors.
10. Limitation on Committees. For the term of the Cooperation Agreement, the
formation by the Corporation's Board of Directors of either (i) an executive
or similar committee of the Corporation's Board of Directors which is
authorized to act upon any Category 2 Matter or Category 3 Matter or (ii) a
nomination committee for the purpose of nominating directors shall require the
approval of OPCO's Board of Directors.
11. Voting by Directors. Any vote on any matter by the Board of Directors of
the Corporation or the members of the Cooperation Committee, the Hotel
Acquisitions Committee or the Unpaired Equity Committee provided for herein
shall require for approval the affirmative vote of the applicable number or
percentage of all of the members of either such Board of Directors then in
office or the then existing members of any such committee, as the case may be.
VI.
Limitation of Liability
Neither a director of the Corporation, a member of OPCO's Board of Directors
nor a member of any duly authorized and constituted committee of the
Corporation or the Board of Directors of the Corporation, including without
limitation, the Cooperation Committee, the Hotel Acquisition Committee and the
Unpaired Equity Committee, shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director or as such a member, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors or the person or persons exercising or performing any of the powers
or duties otherwise conferred or imposed upon directors of the Corporation,
then the liability of the director of the Corporation or the person or persons
exercising or performing any of the powers or duties otherwise conferred or
imposed upon directors of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
VII.
Maintenance of REIT Status
For so long as the Board of Directors deems the maintenance of REIT status
to be in the best interests of the Corporation, it shall be the duty of the
Board of Directors to ensure that the Corporation satisfies the requirements
for qualification as a REIT under the Code, including, but not limited to, the
ownership of its
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outstanding stock, the nature of its assets, the sources of its income, and
the amount and timing of its distributions to its stockholders.
VIII.
Related Person Transaction
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this Corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this Corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the Corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the Corporation.
For purposes of this Article VIII:
1. The term "Business Combination" shall mean (a) any merger,
reorganization or consolidation of this Corporation with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition,
including, without limitation, a mortgage or any other security device, of
all or any substantial part of the assets of this Corporation (including,
without limitation, any voting securities of a subsidiary) or of a
subsidiary, to a Related Person, (c) any merger or consolidation of a
Related Person with or into this Corporation or a subsidiary of this
Corporation and (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a Related
Person to this Corporation or a subsidiary of this Corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate
five percent (5%) or more of the outstanding shares of the capital stock of
this Corporation, and any "affiliate" or "associate" (as those terms are
defined in Rule 12b-2 of the Exchange Act) of any such individual,
corporation, partnership or other person or entity; provided, however, that
the term "Related Person" shall not include either Patriot American
Hospitality Operating Company or any subsidiary of this Corporation.
3. The term "substantial part of the assets" shall mean assets having a
fair market value or book value, whichever is greater, equal to 25% or more
of such value of the total assets as reflected on the most recent quarterly
balance sheet of the Corporation as of a date no earlier than forty-five
(45) days prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this Corporation
which any Related Person has the right to acquire pursuant to any agreement
or upon exercise of conversion rights, warrants or options, or otherwise
shall be deemed beneficially owned by such Related Person.
The provisions set forth in this Article VIII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this Corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
IX.
Amendment of Bylaws
A. Amendment By the Board of Directors. Except as otherwise provided by law
or this Certificate, the Bylaws of the Corporation may be amended or repealed
by the Board of Directors by the affirmative vote of a majority of the
directors then in office.
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B. Amendment By the Stockholders. The Bylaws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends
that stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative vote
of the majority of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class.
X.
Amendment of Certificate of Incorporation
Subject to Article VIII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided however,
that any amendment, repeal or modification of Section F of Article V shall
first require a 66 2/3% vote of the Corporation's Board of Directors and
OPCO's Board of Directors.
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ANNEX G
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
(The Amended and Restated Certificate of Incorporation of Patriot American
Hospitality Operating Company will be substantially similar hereto)
Patriot American Hospitality Operating Company, a corporation organized and
existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
1. The name of the Corporation is Patriot American Hospitality Operating
Company. The date of the filing of its original Certificate of
Incorporation with the Secretary of State of the State of Delaware was
January 27, 1983 (the "Original Certificate of Incorporation"). The name
under which the Corporation filed the Original Certificate of Incorporation
was Bay Meadows Operating Company. An Amended and Restated Certificate of
Incorporation (the "Second Certificate") was filed with the Secretary of
State of the State of Delaware on July 1, 1997, pursuant to which, among
other things, the name of the Corporation was changed to Patriot American
Hospitality Operating Company. Pursuant to this Amended and Restated
Certificate of Incorporation, the name of the Corporation is hereby changed
to Wyndham International, Inc.
2. This Amended and Restated Certificate of Incorporation (the
"Certificate") amends, restates and integrates the provisions of the Second
Certificate, was duly adopted by the Board of Directors of the Corporation
in accordance with the provisions of Sections 242 and 245 of the Delaware
General Corporation Law, as amended from time to time (the "DGCL"), and was
duly adopted by the stockholders of the Corporation in accordance with the
applicable provisions of Sections 242 and 245 of the DGCL.
3. The text of the Second Certificate, is hereby amended and restated in
its entirety to provide as herein set forth in full.
I.
Name
The name of the corporation is Wyndham International, Inc.
II.
Purposes
The nature of business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act for which corporations may be
organized under the DGCL.
III.
Registered Office
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
IV.
Capital Stock
Except as may be otherwise provided in Section G of Article V below, the
Corporation shall have the authority to issue 650,000,000 shares of common
stock, par value $.01 per share (the "Common Stock"),
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<PAGE>
750,000,000 shares of excess stock, par value $.01 per share (the "Excess
Stock"), and 100,000,000 shares of preferred stock, par value $.01 per share
(the "Preferred Stock"). The rights, preferences, voting powers and the
qualifications, limitations and restrictions of the authorized stock shall be
as follows:
A. Common Stock.
1. Voting Rights. Each share of Common Stock shall be entitled to one vote
on all matters submitted to a vote at any meeting of stockholders.
2. Dividend Rights. Subject to the rights of holders of Preferred Stock and
subject to any other provisions of this Certificate or any amendment hereto,
holders of Common Stock shall be entitled to receive such dividends and other
distributions in cash, stock or property of the Corporation as may be declared
thereon by the Board of Directors from time to time.
3. Action Without a Meeting. Any action required or permitted to be taken by
the stockholders of the Corporation at any annual or special meeting of
stockholders of the Corporation may be taken in lieu of such a meeting only by
a unanimous written consent of the stockholders signed by each stockholder
entitled to vote on the matter.
B. Preferred Stock.
1. The Preferred Stock may be issued from time to time in one or more
series, with such distinctive designations, rights and preferences as shall be
stated and expressed herein or in the resolution or resolutions providing for
the issue of shares of a particular series, and in such resolution or
resolutions providing for the issue of shares of such series, the Board of
Directors, or any duly authorized committee thereof, is expressly authorized
to fix or establish the basis for determining:
a. The annual or other periodic dividend rate for such series, the
dividend payment dates, the date from which dividends on all shares of such
series issued shall be cumulative, and the extent of participation rights,
if any;
b. The redemption price or prices, if any, for such series and other
terms and conditions on which such series may be retired and redeemed;
c. The obligation, if any, of the Corporation to purchase and retire or
redeem shares of such series as a sinking fund or otherwise, and the terms
and conditions of any such redemption;
d. The designation and maximum number of shares of such series issuable;
e. The right to vote, if any, with holders of shares of any other class
or series, either generally or as a condition to specified corporate
action;
f. The amount payable upon shares in the event of involuntary
liquidation;
g. The amount payable upon shares in the event of voluntary liquidation;
h. The rights, if any, of the holders of shares of such series to convert
such shares into other classes of stock of the Corporation, or to exchange
such shares for other securities or assets, and the terms and conditions of
any such conversion or exchange; and
i. Such other rights as may be specified by the Board of Directors and
not prohibited by law.
C. Restrictions on Ownership and Transfer of Equity Stock.
1. Definitions. For purposes of this Article IV, the following terms shall
have the meanings set forth below:
"Beneficial Ownership" shall mean, with respect to any Person, ownership
of shares of Equity Stock equal to the sum of (i) the shares of Equity
Stock directly or indirectly owned by such Person, (ii) the number of
shares of Equity Stock treated as owned directly or indirectly by such
Person through the
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application of the constructive ownership rules of Section 544 of the
Internal Revenue Code of 1986, as amended (the "Code"), as modified by
Section 856(h)(1)(B) of the Code, and (iii) the number of shares of Equity
Stock which such Person is deemed to beneficially own pursuant to Rule 13d-
3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided however, that for the purposes of calculating the
foregoing, no share shall be counted more than once. The terms "Beneficial
Owner," "Beneficially Owns" and "Beneficially Owned" shall have correlative
meanings.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named
by the Corporation as the beneficiary or beneficiaries of such Trust, in
accordance with the provisions of Section (D)(4) of this Article IV.
"Constructive Ownership" shall mean ownership of shares of Equity Stock
by a Person who is or would be treated as a direct or indirect owner of
such shares of Equity Stock through the application of Section 318 of the
Code, as modified by Section 856(d)(5) of the Code. The terms "Constructive
Owner," "Constructively Owns" and "Constructively Owned" shall have
correlative meanings.
"Equity Stock" shall mean Common Stock and Preferred Stock of the
Corporation.
"Look-Through Entity" shall mean a Person that is either (i) a trust
described in Section 401(a) of the Code and exempt from tax under Section
501(a) of the Code as modified by Section 856(h)(3) of the Code or (ii)
registered under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a class or
series of Equity Stock, 9.8% of the number of outstanding shares of such
Equity Stock.
"Market Price" on any date shall mean the average of the Closing Price
for the five consecutive Trading Days ending on such date. The "Closing
Price" on any date shall mean the last sale price, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on the New York Stock Exchange or, if the shares of
Equity Stock are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting
system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or
admitted to trading or, if the shares of Equity Stock are not listed or
admitted to trading on any national securities exchange, the last quoted
price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock
Market, Inc. or, if such system is no longer in use, the principal other
automated quotation system that may then be in use or, if the shares of
Equity Stock are not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
selected by the Board of Directors making a market in the shares of Equity
Stock. In the case of Equity Stock that is paired, "Market Price" shall
mean the "Market Price" for paired shares multiplied by a fraction
(expressed as a percentage) determined by dividing the value for such
Equity Stock most recently determined under Section 2(e) of the Pairing
Agreement by the value of a paired share most recently determined under
Section 2(e) of the Pairing Agreement (the "Valuation Percentage").
"Non-Transfer Event" shall mean an event (other than a purported
Transfer) that would (a) cause any Person (other than a Look-Through
Entity) to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit (b) cause any Look-Through Entity to
Beneficially Own or Constructively Own shares of Equity Stock in excess of
the Look-Through Ownership Limit, (c) result in the capital stock of
Patriot REIT being beneficially owned (within the meaning of Section
856(a)(5) of the Code) by fewer than 100 persons within the meaning of
Section 856(a)(5) of the Code, (d) result in Patriot REIT being "closely
held" within the meaning of Section 856(h) of the Code, or (e) cause
Patriot REIT to Constructively Own 10% or more of the ownership interest in
a tenant of Patriot REIT's or a Subsidiary's real property within the
meaning of Section 856(d)(2)(B) of the Code. Non-Transfer Events include
but are not limited to (i) the granting of any option or entering into any
agreement for the sale, transfer or other disposition of shares of Equity
Stock or (ii) the sale, transfer, assignment or other disposition of
interests in
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any Person or of any securities or rights convertible into or exchangeable
for shares of Equity Stock that results in changes in Beneficial Ownership
or Constructive Ownership of shares of Equity Stock.
"Ownership Limit" shall mean, with respect to any class or series of
Equity Stock, 8.0% of the number of outstanding shares of such class or
series of Equity Stock. For purposes of computing the percentage of shares
of any class or series of Equity Stock of the Corporation that is
Beneficially Owned by any Person, any shares of Equity Stock of the
Corporation which are deemed to be Beneficially Owned by such Person
pursuant to Rule 13d-3 of the Exchange Act but which are not outstanding
shall be deemed to be outstanding.
"Pairing Agreement" shall mean the Pairing Agreement, dated as of
February 17, 1983, by and between Bay Meadows Realty Enterprises, Inc. (the
predecessor of California Jockey Club) and Bay Meadows Operating Company,
as amended from time to time in accordance with the provisions thereof.
"Permitted Transferee" shall mean any Person designated as a Permitted
Transferee in accordance with the provisions of Section (D)(8) of this
Article IV.
"Person" shall mean (a) an individual or any corporation, partnership,
estate, trust, association, private foundation, joint stock company or any
other entity and (b) a "group" as that term is defined for purposes of Rule
13d-5 of the Exchange Act.
"Prohibited Owner" shall mean, with respect to any purported Transfer or
Non-Transfer Event, any Person who is prevented from being or becoming the
owner of record title to shares of Equity Stock by the provisions of
Section (D)(1) of this Article IV.
"Restriction Termination Date" shall mean the first day on which the
Corporation is no longer a party to the Pairing Agreement, the Pairing
Agreement terminates or the Corporation is no longer required by the
Pairing Agreement to maintain the restrictions set forth in this Section C
of this Article IV.
"Trading Day" shall mean a day on which the principal national securities
exchange on which shares of Equity Stock are listed or admitted to trading
is open for the transaction of business or, if shares of Equity Stock are
not listed or admitted to trading on any national securities exchange, any
day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law or executive
order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift, assignment,
devise or other disposition of shares of Equity Stock, whether voluntary or
involuntary, whether of record, constructively or beneficially and whether
by operation of law or otherwise. "Transfer" (as a verb) shall have the
correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section D of this Article IV, for the
exclusive benefit of any Beneficiary.
"Trustee" shall mean any Person or entity unaffiliated with both the
Corporation and any Prohibited Owner designated by the Corporation to act
as trustee of any Trust, or any successor trustee thereof. The Trustee
shall be designated by the Corporation and Patriot American Hospitality,
Inc. ("Patriot REIT") in accordance with the Pairing Agreement.
2. Restriction on Ownership and Transfer.
a. Except as provided in Section (C)(4) of this Article IV, until the
Restriction Termination Date, (i) no Person (other than a Look-Through Entity)
shall Beneficially Own or Constructively Own outstanding shares of Equity
Stock in excess of the Ownership Limit and no Look-Through Entity shall
Beneficially Own or Constructively Own outstanding shares of Equity Stock in
excess of the Look-Through Ownership Limit, (ii) any Transfer (whether or not
the result of a transaction entered into through the facilities of the New
York Stock Exchange) that, if effective, would result in any Person (other
than a Look-Through Entity) Beneficially Owning or Constructively Owning
shares of Equity Stock in excess of the Ownership Limit shall be void ab
initio as to the Transfer of that number of shares of Equity Stock which would
be otherwise Beneficially Owned or Constructively Owned by such Person in
excess of the Ownership Limit and the intended transferee shall acquire no
rights in such shares of Equity Stock, and (iii) any Transfer (whether or not
the result of a transaction entered
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into through the facilities of the New York Stock Exchange) that, if
effective, would result in any Look-Through Entity Beneficially Owning or
Constructively Owning shares of Equity Stock in excess of the Look-Through
Ownership Limit shall be void ab initio as to the Transfer of that number of
shares of Equity Stock which would be otherwise Beneficially Owned or
Constructively Owned by such Look-Through Entity in excess of the Look-Through
Ownership Limit and the intended transferee shall acquire no rights in such
shares of Equity Stock.
b. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that are paired pursuant to the
Pairing Agreement that, if effective, would result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code shall be void
ab initio as to the Transfer of that number of shares of Equity Stock that are
paired pursuant to the Pairing Agreement that would cause Patriot REIT to be
"closely held" within the meaning of Section 856(h) of the Code, and the
intended transferee shall acquire no rights in such shares of Equity Stock.
c. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of shares of Equity Stock that, if effective, would cause
Patriot REIT to Constructively Own 10% or more of the ownership interests in a
tenant of the real property of Patriot REIT or any direct or indirect
subsidiary (whether a corporation, partnership, limited liability company or
other entity) of Patriot REIT (a "Subsidiary"), within the meaning of Section
856(d)(2)(B) of the Code, shall be void ab initio as to the Transfer of that
number of shares of Equity Stock that would cause Patriot REIT to
Constructively Own 10% or more of the ownership interests in a tenant of the
real property of Patriot REIT or a Subsidiary within the meaning of Section
856(d)(2)(B) of the Code, and the intended transferee shall acquire no rights
in such shares of Equity Stock.
d. Until the Restriction Termination Date, any Transfer (whether or not the
result of a transaction entered into through the facilities of the New York
Stock Exchange) of Equity Stock that is paired pursuant to the Pairing
Agreement that, if effective, would result in the capital stock of Patriot
REIT being beneficially owned (within the meaning of Section 856(a)(5) of the
Code) by fewer than 100 persons within the meaning of Section 856(a)(5) of the
Code shall be void ab initio and the intended transferee shall acquire no
rights in such shares of Equity Stock.
3. Owners Required to Provide Information. Until the Restriction Termination
Date:
a. Every Beneficial Owner or Constructive Owner of more than 5%, or such
lower percentages as required pursuant to regulations under the Code, of
the outstanding shares of any class or series of Equity Stock of the
Corporation shall, within 30 days after January 1 of each year, provide to
the Corporation a written statement or affidavit stating the name and
address of such Beneficial Owner or Constructive Owner, the number of
shares of Equity Stock Beneficially Owned or Constructively Owned, and a
description of how such shares are held. Each such Beneficial Owner or
Constructive Owner shall provide to the Corporation such additional
information as the Corporation may request to ensure compliance with the
restrictions in this Section C of this Article IV.
b. Each Person who is a Beneficial Owner or Constructive Owner of shares
of Equity Stock and each Person (including the stockholder of record) who
is holding shares of Equity Stock for a Beneficial Owner or Constructive
Owner shall provide to the Corporation a written statement or affidavit
stating such information as the Corporation may request to ensure
compliance with the restrictions set forth in this Section C of this
Article IV.
4. Exception. The Board of Directors may exempt a Person from the Ownership
Limit or the Look-Through Ownership Limit, provided that (A) such exemption is
permitted by and made in accordance with the Pairing Agreement and (B) such
Person agrees in writing that any violation or attempted violation of the
Ownership Limit or Look-Through Ownership Limit, as the case may be, will
result in the conversion of such shares into shares of Excess Stock pursuant
to Section (D)(1) of this Article IV and provides such other representations
and undertakings as the Board of Directors may reasonably require.
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5. New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in this Certificate shall preclude
the settlement of any transaction entered into through the facilities of the
New York Stock Exchange.
D. Excess Stock.
1. Conversion into Excess Stock.
a. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event such that any Person (other than a Look-Through Entity)
would either Beneficially Own or Constructively Own shares of Equity Stock
in excess of the Ownership Limit or such that any Person that is a Look-
Through Entity would either Beneficially Own or Constructively Own shares
of Equity Stock in excess of the Look-Through Ownership Limit, then, (i)
except as otherwise provided in Section (C)(4) of this Article IV, the
purported transferee shall be deemed to be a Prohibited Owner and shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title to the shares of Equity Stock Beneficially
Owned or Constructively Owned by such Beneficial Owner or Constructive
Owner, shall cease to own any right or interest) in such number of shares
of Equity Stock which would cause such Beneficial Owner or Constructive
Owner to Beneficially Own or Constructively Own shares of Equity Stock in
excess of the Ownership Limit or the Look-Through Ownership Limit, as the
case may be, (ii) such number of shares of Equity Stock in excess of the
Ownership Limit or the Look-Through Ownership Limit, as the case may be,
(rounded up to the nearest whole share) shall be automatically converted
into an equal number of shares of Excess Stock and transferred to a Trust
in accordance with Section (D)(4) of this Article IV and (iii) the
Prohibited Owner shall submit such number of shares of Equity Stock to the
Corporation for registration in the name of the Trustee of the Trust. Such
conversion into Excess Stock and transfer to a Trust shall be effective as
of the close of trading on the Trading Day prior to the date of the
Transfer or Non-Transfer Event, as the case may be.
b. If, notwithstanding the other provisions contained in this Article IV,
prior to the Restriction Termination Date, there is a purported Transfer or
Non-Transfer Event that, if effective, would (i) result in the capital
stock of Patriot REIT being beneficially owned (within the meaning of
Section 856(a)(5) of the Code) by fewer than 100 persons within the meaning
of Section 856(a)(5) of the Code, (ii) result in Patriot REIT being
"closely held" within the meaning of Section 856(h) of the Code or (iii)
cause Patriot REIT to Constructively Own 10% or more of the ownership
interest in a tenant of Patriot REIT's or a Subsidiary's real property
within the meaning of Section 856(d)(2)(B) of the Code, then (x) the
purported transferee shall be deemed to be a Prohibited Owner and shall
acquire no right or interest (or, in the case of a Non-Transfer Event, the
Person holding record title of the shares of Equity Stock with respect to
which such Non-Transfer Event occurred, shall be deemed to be a Prohibited
Owner and shall cease to own any right or interest) in such number of
shares of Equity Stock, the ownership of which by such purported transferee
or record holder would (A) result in the capital stock of Patriot REIT
being beneficially owned (within the meaning of Section 856(a)(5) of the
Code) by fewer than 100 persons within the meaning of Section 856(a)(5) of
the Code, (B) result in Patriot REIT being "closely held" within the
meaning of Section 856(h) of the Code or (C) cause Patriot REIT to
Constructively Own 10% or more of the ownership interests in a tenant of
Patriot REIT's or a Subsidiary's real property within the meaning of
Section 856(d)(2)(B) of the Code, (y) such number of shares of Equity Stock
(rounded up to the nearest whole share) shall be automatically converted
into an equal number of shares of Excess Stock and transferred to a Trust
in accordance with Section (D)(4) of this Article IV and (z) the Prohibited
Owner shall submit such number of shares of Equity Stock to the Corporation
for registration in the name of the Trustee of the Trust. Such conversion
into Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the Transfer or
Non-Transfer Event, as the case may be.
c. Upon the occurrence of such a conversion of shares of any class or
series of Equity Stock into an equal number of shares of Excess Stock, such
shares of Equity Stock shall be automatically retired and canceled, without
any action required by the Board of Directors of the Corporation, and shall
thereupon be
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restored to the status of authorized but unissued shares of the particular
class or series of Equity Stock from which such Excess Stock was converted
and may be reissued by the Corporation as that particular class or series
of Equity Stock.
2. Remedies for Breach. If the Corporation, or its designees, shall at any
time determine in good faith that a Transfer has taken place in violation of
Section (C)(2) of this Article IV or that a Person intends to acquire or has
attempted to acquire Beneficial Ownership or Constructive Ownership of any
shares of Equity Stock in violation of Section (C)(2) of this Article IV, the
Corporation shall take such action as it deems advisable to refuse to give
effect to or to prevent such Transfer or acquisition, including, but not
limited to, refusing to give effect to such Transfer on the stock transfer
books of the Corporation or instituting proceedings to enjoin such Transfer or
acquisition.
3. Notice of Restricted Transfer. Any Person who acquires or attempts to
acquire shares of Equity Stock in violation of Section (C)(2) of this Article
IV, or any Person who owns shares of Equity Stock that were converted into
shares of Excess Stock and transferred to a Trust pursuant to Sections (D)(1)
and (D)(4) of this Article IV, shall immediately give written notice to the
Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect,
if any, of such Transfer or Non-Transfer Event, as the case may be, on the
Corporation's compliance with the terms of the Pairing Agreement, including
the effect on Patriot REIT's status as a real estate investment trust.
4. Ownership in Trust. Upon any Transfer or Non-Transfer Event that results
in Excess Stock pursuant to Section (D)(1) of this Article IV, such Excess
Stock shall be automatically transferred to a Trust to be held for the
exclusive benefit of the Beneficiary. The Corporation and Patriot REIT shall
name a Beneficiary for each Trust pursuant to the terms of the Pairing
Agreement. Any conversion of shares of Equity Stock into shares of Excess
Stock and transfer to a Trust shall be effective as of the close of trading on
the Trading Day prior to the date of the Transfer or Non-Transfer Event that
results in the conversion. Shares of Excess Stock so held in trust shall
remain issued and outstanding shares of stock of the Corporation.
5. Dividend Rights. Each share of Excess Stock shall be entitled to the same
dividends and distributions (as to both timing and amount) as may be declared
by the Board of Directors as shares of the class or series of Equity Stock
from which such Excess Stock was converted. The Trustee, as record holder of
the shares of Excess Stock, shall be entitled to receive all dividends and
distributions and shall hold all such dividends or distributions in trust for
the benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any dividends or
distributions received by it (i) that are attributable to any shares of Equity
Stock that have been converted into shares of Excess Stock and (ii) the record
date of which was on or after the date that such shares were converted into
shares of Excess Stock. The Corporation shall take all measures that it
determines reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary, withholding
any portion of future dividends or distributions payable on shares of Equity
Stock Beneficially Owned or Constructively Owned by the Person who, but for
the provisions of this Article IV, would Constructively Own or Beneficially
Own the shares of Equity Stock that were converted into shares of Excess
Stock; and, as soon as reasonably practicable following the Corporation's
receipt or withholding thereof, shall pay over to the Trust for the benefit of
the Beneficiary the dividends so received or withheld, as the case may be.
6. Rights upon Liquidation. In the event of any voluntary or involuntary
liquidation of, or winding up of, or any distribution of the assets of, the
Corporation, each holder of shares of Excess Stock shall be entitled to
receive, ratably with each other holder of shares of Equity Stock of the same
class or series from which the Equity Stock was converted, that portion of the
assets of the Corporation that is available for distribution to the holders of
such class or series of Equity Stock. The Trust shall distribute to the
Prohibited Owner the amounts received upon such liquidation, dissolution, or
winding up, or distribution; provided, however, that the Prohibited Owner
shall not be entitled to receive amounts in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the conversion of the shares into
shares of Excess Stock, the price per share, if any, such Prohibited Owner
paid for the shares of
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Equity Stock (which, in the case of Equity Stock that is paired, shall equal
the price per paired share multiplied by the most recent Valuation Percentage)
and, in the case of a Non-Transfer Event or Transfer in which the Prohibited
Owner did not give value for such shares (e.g., if the shares were received
through a gift or devise) and which Non-Transfer Event or Transfer, as the
case may be, resulted in the conversion of the shares into shares of Excess
Stock, the price per share equal to the Market Price on the date of such Non-
Transfer Event or Transfer. Any remaining amount in such Trust shall be
distributed to the Beneficiary.
7. Voting Rights. Each share of Excess Stock shall entitle the holder to the
number of votes the holder would have, if such share of Excess Stock was a
share of Equity Stock of the same class or series from which such Excess Stock
was converted, on all matters submitted to a vote at any meeting of
stockholders. The holders of shares of Excess Stock converted from the same
class or series of Equity Stock shall vote together with the holders of such
Equity Stock as a single class on all such matters. The Trustee, as record
holder of the Excess Stock, shall be entitled to vote all shares of Excess
Stock. Any vote by a Prohibited Owner as a purported holder of shares of
Equity Stock prior to the discovery by the Corporation that the shares of
Equity Stock have been converted into shares of Excess Stock shall, subject to
applicable law, be rescinded and shall be void ab initio with respect to such
shares of Excess Stock, and the Prohibited Owner shall be deemed to have
given, as of the close of trading on the Trading Day prior to the date of the
purported Transfer or Non-Transfer Event that results in the conversion of the
shares of Equity Stock into shares of Excess Stock and the transfer of such
shares to a Trust pursuant to Sections (D)(1) and (D)(4) of this Article IV,
an irrevocable proxy to the Trustee to vote the shares of Excess Stock in the
manner in which the Trustee, in its sole and absolute discretion, desires.
8. Designation of Permitted Transferee.
a. The Trustee shall have the exclusive and absolute right to designate one
or more Permitted Transferees of any and all shares of Excess Stock if the
Corporation fails to exercise its option with respect to such shares pursuant
to Section (D)(10) hereof within the time period set forth therein. As soon as
practicable, but in an orderly fashion so as not to materially adversely
affect the Market Price of the shares of Excess Stock, the Trustee shall
designate any one or more Persons as Permitted Transferees; provided, however,
that (i) the Permitted Transferee so designated purchases for valuable
consideration (whether in a public or private sale) the shares of Excess Stock
(which, in the case of paired Excess Stock, shall be determined based on the
Valuation Percentage) and (ii) the Permitted Transferee so designated may
acquire such shares of Excess Stock without violating any of the restrictions
set forth in Section (C)(2) of this Article IV and without such acquisition
resulting in the conversion of the shares of Equity Stock so acquired into
shares of Excess Stock and the transfer of such shares to a Trust pursuant to
Sections (D)(1) and (D)(4) of this Article IV.
b. Upon the designation by the Trustee of a Permitted Transferee in
accordance with the provisions of this Section (D)(8), the Trustee shall cause
to be transferred to the Permitted Transferee that number of shares of Excess
Stock acquired by the Permitted Transferee. Upon such transfer of the shares
of Excess Stock to the Permitted Transferee, such shares of Excess Stock shall
be automatically converted into an equal number of shares of Equity Stock of
the same class and series from which such Excess Stock was converted. Upon the
occurrence of such a conversion of shares of Excess Stock into an equal number
of shares of Equity Stock, such shares of Excess Stock shall be automatically
retired and canceled, without any action required by the Board of Directors of
the Corporation, and shall thereupon be restored to the status of authorized
but unissued shares of Excess Stock and may be reissued by the Corporation as
Excess Stock.
c. The Trustee shall (i) cause to be recorded on the stock transfer books of
the Corporation that the Permitted Transferee is the holder of record of such
number of shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to the shares of Excess Stock after making
payment to the Prohibited Owner pursuant to Section (D)(9) of this Article IV.
d. If the Transfer of shares of Excess Stock to a purported Permitted
Transferee shall violate any of the transfer restrictions set forth in Section
(C)(2) of this Article IV, such Transfer shall be void ab initio as to that
number of shares of Excess Stock that cause the violation of any such
restriction when such shares are converted
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into shares of Equity Stock (as described in clause (b) above) and the
purported Permitted Transferee shall be deemed to be a Prohibited Owner and
shall acquire no rights in such shares of Excess Stock or Equity Stock. Such
shares of Equity Stock shall be automatically re-converted into Excess Stock
and transferred to the Trust from which they were originally Transferred. Such
conversion and transfer to the Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer to the purported
Permitted Transferee and the provisions of this Article IV shall apply to such
shares, including, without limitation, the provisions of Sections (D)(8)
through (D)(10) with respect to any future Transfer of such shares by the
Trust.
9. Compensation to Record Holder of Shares of Equity Stock that are
Converted into Shares of Excess Stock. Any Prohibited Owner shall be entitled
(following discovery of the shares of Excess Stock and subsequent designation
of the Permitted Transferee in accordance with Section (D)(8) of this Article
IV or following the acceptance of the offer to purchase such shares in
accordance with Section (D)(10) of this Article IV) to receive from the
Trustee following the sale or other disposition of such shares of Excess Stock
the lesser of (i) (a) in the case of a purported Transfer in which the
Prohibited Owner gave value for shares of Equity Stock and which Transfer
resulted in the conversion of such shares into shares of Excess Stock, the
price per share, if any, such Prohibited Owner paid for the shares of Equity
Stock (which, in the case of paired Excess Stock, shall be determined based on
the Valuation Percentage) and (b) in the case of a Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which Non-
Transfer Event or Transfer, as the case may be, resulted in the conversion of
such shares into shares of Excess Stock, the price per share equal to the
Market Price on the date of such Non-Transfer Event or Transfer or (ii) the
price per share (which, in the case of paired Excess Stock, shall be
determined based on the Valuation Percentage) received by the Trustee from the
sale or other disposition of such shares of Excess Stock in accordance with
this Section (D)(9) or Section (D)(10) of this Article IV. Any amounts
received by the Trustee in respect of such shares of Excess Stock and in
excess of such amounts to be paid the Prohibited Owner pursuant to this
Section (D)(9) shall be distributed to the Beneficiary in accordance with the
provisions of Section (D)(8) of this Article IV. Each Beneficiary and
Prohibited Owner shall waive any and all claims that it may have against the
Trustee and the Trust arising out of the disposition of shares of Excess
Stock, except for claims arising out of the gross negligence or willful
misconduct of, or any failure to make payments in accordance with this Section
D of this Article IV by, such Trustee or the Corporation.
10. Purchase Right in Excess Stock. Shares of Excess Stock shall be deemed
to have been offered for sale to the Corporation or its designee, at a price
per share equal to the lesser of (i) the price per share (which, in the case
of paired Excess Stock, shall be determined based on the Valuation Percentage)
in the transaction that created such shares of Excess Stock (or, in the case
of devise, gift or Non-Transfer Event, the Market Price at the time of such
devise, gift or Non-Transfer Event) or (ii) the Market Price on the date the
Corporation, or its designee, accepts such offer. The Corporation shall have
the right to accept such offer for a period of 90 days following the later of
(a) the date of the Non-Transfer Event or purported Transfer which results in
such shares of Excess Stock or (b) the date on which the Corporation
determines in good faith that a Transfer or Non-Transfer Event resulting in
shares of Excess Stock previously has occurred, if the Corporation does not
receive a notice of such Transfer or Non-Transfer Event pursuant to Section
(D)(3) of this Article IV.
E. Preemptive Rights. No holder of shares of any class or series of capital
stock shall as such holder have any preemptive or preferential right to
purchase or subscribe to (i) any shares of any class or series of capital
stock of the Corporation, whether now or hereafter authorized, (ii) any
warrants, rights or options to purchase any such capital stock or (iii) any
obligations convertible into any such capital stock or into warrants, rights
or options to purchase any such capital stock.
F. Remedies Not Limited. Nothing contained in this Article IV shall limit
the authority of the Corporation to take such other action as it deems
necessary or advisable to protect the Corporation and the interests of its
stockholders to ensure compliance with the requirements of the Pairing
Agreement and with the restrictions set forth in Section C of this Article IV.
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G. Ambiguity. In the case of an ambiguity in the application of any of the
provisions of this Article IV, including any definition contained in Section
(C)(1) of this Article IV, the Board of Directors shall have the power to
determine the application of the provisions of this Article IV with respect to
any situation based on the facts known to it.
H. Legend. Each certificate for shares of Equity Stock shall bear the
following legend:
"The shares of Patriot American Hospitality, Inc. and Wyndham
International, Inc. represented by this combined certificate are subject to
restrictions in the respective Amended and Restated Certificates of
Incorporation of each company which prohibit (a) any Person (other than a
Look-Through Entity) (as such terms are defined in the respective Amended
and Restated Certificates of Incorporation of each company) from
Beneficially Owning or Constructively Owning (as these terms are defined in
the respective Amended and Restated Certificates of Incorporation of each
company) in excess of 8.0% of the number of outstanding shares of any class
or series of Equity Stock (as that term is defined in the respective
Amended and Restated Certificates of Incorporation of each company), (b)
any Look-Through Entity from Beneficially Owning or Constructively Owning
in excess of 9.8% of the number of outstanding shares of any class or
series of Equity Stock, (c) any Person from acquiring or maintaining any
ownership interest in the stock of either company that is inconsistent with
(i) the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to real estate investment trusts or (ii) Article IV of the
respective Amended and Restated Certificates of Incorporation of each
company and (d) any transfer of shares of any class or series of Equity
Stock of either company that are paired pursuant to the Pairing Agreement,
dated as of February 17, 1983, between the two companies, as amended from
time to time in accordance with the provisions thereof (the "Pairing
Agreement"), except in combination with an equal number of shares of the
other company in accordance with the respective Amended and Restated Bylaws
of each company and the Pairing Agreement, copies of which are on file with
the transfer agent named on the face hereof, and the holder of this
certificate by his acceptance hereof consents to be bound by such
restrictions.
Patriot American Hospitality, Inc. and Wyndham International, Inc. will
furnish without charge to each stockholder who so requests a copy of the
relevant provisions of the respective Amended and Restated Certificates of
Incorporation and the respective Amended and Restated Bylaws of each
company, a copy of the Pairing Agreement and a copy of the provisions
setting forth the designations, preferences, privileges and rights of each
class of stock or series thereof that each company is authorized to issue
and the qualifications, limitations and restrictions of such preferences
and/or rights. Any such request may be addressed to the Secretary of either
company or to the transfer agent named on the face hereof."
I. Severability. Each provision of this Article IV shall be severable and an
adverse determination as to any such provision shall be in no way affect the
validity of any other provision.
V.
Directors
A. General Powers. Except as otherwise expressly provided in this
Certificate, the property, affairs and business of the Corporation shall be
managed under the direction of the Board of Directors and, except as otherwise
expressly provided by law, the Bylaws or this Certificate, all of the powers
of the Corporation shall be vested in such Board.
B. Number of Directors. The number of directors shall be fixed by resolution
duly adopted from time to time by the Board of Directors. A director need not
be a stockholder of the Corporation.
C. Terms of Directors. The directors shall be classified, with respect to
the term for which they severally hold office, into three classes, as nearly
equal in number as possible. At each annual meeting of stockholders, the
successor or successors of the class of directors whose term expires at that
meeting shall be elected by a plurality
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of the votes of the shares present in person or represented by proxy at such
meeting and entitled to vote on the election of directors, and shall hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election. The directors elected to each
class shall hold office until their successors are duly elected and qualified
or until their earlier resignation or removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
Article IV of this Certificate, the holders of any one or more series of
Preferred Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate and any certificates of designation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Section C of this Article V.
During any period when the holders of any series of Preferred Stock have the
right to elect additional directors as provided for or fixed pursuant to the
provisions of Article IV of this Certificate, then upon commencement and for
the duration of the period during which such right continues: (a) the then
otherwise total authorized number of directors of the Corporation shall
automatically be increased by such specified number of directors, and the
holders of such Preferred Stock shall be entitled to elect the additional
directors so provided for or fixed pursuant to said provisions and (b) each
such additional director shall serve until such director's successor shall
have been duly elected and qualified, or until such director's right to hold
such office terminates pursuant to said provisions, whichever occurs earlier,
subject to such director's earlier death, disqualification, resignation or
removal. Except as otherwise provided by the Board in the resolution or
resolutions establishing such series, whenever the holders of any series of
Preferred Stock having such right to elect additional directors are divested
of such right pursuant to the provisions of such stock, the terms of office of
all such additional directors elected by the holders of such stock, or elected
to fill any vacancies resulting from the death, resignation, disqualification
or removal of such additional directors, shall forthwith terminate and the
total and authorized number of directors of the Corporation shall be reduced
accordingly.
D. Removal of Directors; Qualification.
1. Except as provided in Section (D)(2) below and subject to the rights, if
any, of any series of Preferred Stock to elect directors and to remove any
director whom the holders of any such stock have the right to elect, any
director (including persons elected by directors to fill vacancies in the
Board of Directors) may be removed from office (a) only with cause and (b)
only by the affirmative vote of the holders of at least 75% of the shares then
entitled to vote at an election of directors. At least 30 days prior to any
meeting of stockholders at which it is proposed that any director be removed
from office, written notice of such proposed removal shall be sent to the
director whose removal will be considered at the meeting. For purposes of this
Certificate, "cause," with respect to the removal of any director shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of
a court, (iii) gross dereliction of duty, (iv) commission of any act involving
moral turpitude or (v) commission of an act that constitutes intentional
misconduct or a knowing violation of law if such action in either event
results both in an improper substantial personal benefit to such director and
a material injury to the Corporation.
2. Notwithstanding anything to the contrary contained above in Section
(D)(1) above, if at any time any director of the Corporation shall interfere
or fail to cooperate fully with any Issuance of Paired Equity (as required by
Section G of Article V below), such director (i) shall be deemed to be no
longer acting within the scope of his authority with respect to the management
of the affairs of the Corporation and (ii) shall have failed to remain
qualified as a director. In such event, such director shall automatically
cease to be a director and shall no longer be qualified to serve as a director
of the Corporation at any future date unless consented to by a resolution of
the Board of Directors of Patriot. The determination of whether any director
of Corporation has interfered or failed to cooperate fully with any Issuance
of Paired Equity shall be made by the Board of Directors of Patriot (as
defined in Section F of Article V. below) and notice of any such determination
shall be given by Patriot to the Corporation within 10 days after the date of
such determination. Notwithstanding when such determination and notice shall
be made and given, any such director shall be deemed to have ceased to be a
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director at the time of any such interference or failure to cooperate;
provided, however, that for purposes of any right to indemnification to which
such director would otherwise be entitled, such director shall be deemed to
have been acting as a director until such time as such determination and
notice shall be made and given, and such director's right to indemnification,
if any, shall in no way be prejudiced solely by reason of having acted as a
director during the period from the time of such interference or failure to
cooperate until such determination and notice are made and given.
E. Vacancies. Subject to the rights, if any, of the holders of any series of
Preferred Stock to elect directors and to fill vacancies in the Board of
Directors relating thereto, any and all vacancies in the Board of Directors,
however occurring, including, without limitation, by reason of an increase in
size of the Board of Directors, or the death, resignation, disqualification or
removal of a director, shall be filled solely by the affirmative vote of a
majority of the remaining directors then in office, even if less than a quorum
of the Board of Directors. Any director appointed in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
class of directors in which the new directorship was created or the vacancy
occurred and until such director's successor shall have been duly elected and
qualified or until such director's earlier resignation or removal. Subject to
the rights, if any, of the holders of any series of Preferred Stock, when the
number of directors is increased or decreased, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be apportioned; provided, however, that no decrease in the
number of directors shall shorten the term of any incumbent director. In the
event of a vacancy in the Board of Directors, the remaining directors, except
as otherwise provided by law, may exercise the powers of the full Board of
Directors until such vacancy is filled.
F. Cooperation and Coordination with Patriot.
1. Definitions. For the purposes of Section F of this Article V the
following terms shall have the meanings set forth below:
"Change of Control" shall mean the occurrence, with respect to either
Patriot or the Corporation, of any one of the following events (Patriot and
the Corporation being referred to below, as the case may be, as the
"Company"):
a. any "person," as such term is used in Sections 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company or any trustee fiduciary or other person or
entity holding securities under any employee benefit plan or trust of
the Company, together with all "affiliates" and "associates" (as such
terms are defined in Rule 12b-2 under the Exchange Act) of such person,
shall become the "beneficial owner" (as such term is defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of either (A) the combined voting
power of the Company's then outstanding securities having the right to
vote generally in an election of the Company's Board of Directors (the
"Voting Securities") or (B) the then outstanding Paired Shares (in
either such case other than as a result of an acquisition of securities
directly from the Company); or
b. (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or
merger, would not, solely as a result of their capacity as such,
immediately after the consolidation or merger, beneficially own (as
such term is defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, securities representing in the aggregate 50% or more of the
voting securities of the corporation issuing cash or securities in the
consolidation or merger (or of its ultimate parent corporation, if
any), (B) any sale, lease, exchange or other transfer (in one
transaction or a series of transactions contemplated or arranged by any
party as a single plan) of all or substantially all of the assets of
the Company or (C) any plan or proposal for the liquidation or
dissolution of the Company.
Notwithstanding the foregoing, a "Change of Control" shall not be deemed
to have occurred for purposes of the foregoing clause (i) solely as the
result of an acquisition of securities by the Company which, by reducing
the number of Paired Shares or other Voting Securities outstanding,
increases (x) the
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proportionate number of Paired Shares beneficially owned by any person to
50% or more of the Paired Shares then outstanding or (y) the proportionate
voting power represented by the Voting Securities beneficially owned by any
person to 50% or more of the combined voting power of all then outstanding
Voting Securities; provided, however, that if any person referred to in
clause (x) or (y) of this sentence shall thereafter become the beneficial
owner of any additional Paired Shares or other Voting Securities (other
than pursuant to a stock split, stock dividend, or similar transaction) and
whose ownership immediately thereafter shall equal or exceed the amounts
set forth in clauses (x) or (y), then a "Change of Control" shall be deemed
to have occurred for purposes of the foregoing clause (i).
"Change in Patriot's Line of Business" shall mean an action by Patriot or
Patriot OP (as hereinafter defined) with respect to Patriot's or Patriot
OP's business that results in the consolidation for financial reporting
purposes of the results of operations of Patriot with those of any business
activity other than hospitality and hospitality-related businesses, the
gaming business and any other business in which Patriot or Patriot OP is
engaged as of the date of this Certificate.
"Cooperation Agreement" shall mean the Cooperation Agreement to be
entered into by and between Patriot and the Corporation in connection with
the Merger.
"Issuance of Paired Equity" means a private or public offering, sale,
issuance or delivery of, or commitment or agreement to commit to offer,
sell, issue or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or
otherwise) any stock of any class or any other debt or equity securities of
the Corporation (including, without limitation, indebtedness having the
right to vote, indebtedness convertible into any equity of any class or any
other securities) or limited partnership interests or units of Patriot
American Hospitality Operating Partnership, L.P. ("OPCO OP")), or equity
equivalents of either (including, without limitation, stock appreciation
rights), if it is contemplated that such stock or other securities, or any
securities underlying such stock or other securities, would or could be
paired with Patriot Stock (as defined in the Merger Agreement) or any other
securities of Patriot, or, in the case of limited partnership interests or
units of OPCO OP, it is contemplated that such interests or units would or
could be economically (or otherwise) "paired" (even if not pursuant to the
Pairing Agreement) with the limited partnership interests or units of
Patriot American Hospitality Partnership, L.P. ("Patriot OP"). Issuance of
Paired Equity shall also mean (A) the related issuance by Patriot or
Patriot OP of the securities of Patriot or Patriot OP which are paired with
the securities of the Corporation or OPCO OP and (B) any reorganization,
recapitalization, reclassification, stock dividend, stock split,
combination of shares, exchange of shares, repurchase or redemption of
shares, change in corporate structure or the like in which the outstanding
Paired Shares would be increased, decreased, changed into or exchanged for
a different number or kind of Paired Shares or other paired securities.
"Issuance of Unpaired Equity" means, in the case of the Corporation, a
public or private offering, sale, issuance, delivery or commitment or
agreement to commit to offer, sell, issue or deliver (whether through the
issuance or granting of options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any or all securities described in the
immediately preceding definition of "Issuance of Paired Equity" if it is
contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with Patriot Stock (as defined in the Merger Agreement) or any other
securities of Patriot or, in the case of limited partnership interests or
units of OPCO OP, it is contemplated that such interests or units would not
or could not economically (or otherwise) be "paired" with the limited
partnership interests or units of Patriot OP. "Issuance of Unpaired Equity"
means, in the case of Patriot, a public or private offering, sale, issuance
or delivery of, or commitment or agreement to commit to offer, sell, issue
or deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise), any stock of
any class or any other debt or equity securities of Patriot (including,
without limitation, indebtedness having the right to vote and indebtedness
convertible into any equity of any class or any other securities) or
limited partnership interests or units of Patriot OP, or equity equivalents
of either (including, without limitation, stock appreciation rights), if it
is contemplated that such stock or other securities, and any securities
underlying such stock or other securities, would not or could not be paired
with OPCO Stock (as defined in the Merger Agreement)
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or any other securities of the Corporation or, in the case of limited
partnership interests or units of Patriot OP, it is contemplated that such
interests or units would not or could not be economically (or otherwise)
"paired" (even if not pursuant to the Pairing Agreement) with the limited
partnership interests or units of OPCO OP.
"Merger" shall mean the merger of Patriot and Wyndham Hotel Corporation,
a Delaware corporation ("Wyndham"), pursuant to an Agreement and Plan of
Merger dated as of April 14, 1997 (the "Merger Agreement"), in which
Patriot and Wyndham agreed to engage in a business combination pursuant to
which Wyndham will merge with and into Patriot with Patriot being the
surviving corporation.
"Paired Shares" or "PAIRED EQUITY" shall mean, immediately following the
Merger, the shares of common stock, par value $.01 per share, of the
Corporation (the "Corporation Paired Stock") and the shares of common
stock, par value $.01 per share, of Patriot (the "Patriot Paired Stock")
which are paired and transferable and traded only in combination as a
single unit on the New York Stock Exchange (together, the "Paired Shares"
or "Paired Equity").
"Patriot" shall mean Patriot American Hospitality, Inc.
2. Establishment of Cooperation Committee. The Corporation shall establish
with Patriot, as promptly as practicable following the closing of the Merger
and thereafter to continue in effect, a committee (the "Cooperation
Committee") consisting of (i) the Chairman of Patriot's Board of Directors
(who shall be the Chairman of the Cooperation Committee), (ii) the Chairman of
the Corporation's Board of Directors, (iii) a designee of Patriot's Board of
Directors reasonably acceptable to the Corporation (who shall serve at the
pleasure of Patriot's Board of Directors and may be removed and replaced at
any time) and (iv) the President of OPCO. The Cooperation Committee will
normally consider and propose the agenda listing the matters to be considered
at any joint meeting of the Boards of Directors of Patriot and the
Corporation, subject to the right of a Board member to request consideration
of additional matters. The Cooperation Committee shall establish such
procedures for the conduct of its business as it shall deem appropriate from
time to time.
3. Corporate Matters Categories. All matters to be considered by the
Corporation's Board of Directors, and all matters related thereto, except (i)
a Change in Patriot's Line of Business and (ii) Issuances of Paired Equity and
Issuances of Unpaired Equity, shall be classified into the most appropriate of
the following three categories:
a. Routine corporate governance matters, such as approval and retention
of independent accountants, the fixing of employee compensation and other
like matters (each, a "Category 1 Matter");
b. All other matters, other than a Change of Control and the removal of
the Chairman or Chief Executive Officer of the Corporation, and, after the
third anniversary of the Merger, all other matters (including a Change of
Control) other than the removal of the Chairman or Chief Executive Officer
of the Corporation (each, a "Category 2 Matter"); and
c. The removal of the Chairman or Chief Executive officer of the
Corporation and, until the third anniversary of the Merger, any proposed
action by the Corporation that would result in a Change of Control (each, a
"Category 3 Matter").
4. Consideration of Corporate Matters.
a. At any meeting of the Corporation's Board of Directors (whether or not
held jointly with Patriot), the Corporation may (i) submit a Category 1
Matter to the consideration and vote of the Corporation's Board of
Directors, irrespective of any consideration or vote by Patriot's Board of
Directors, (ii) submit a Category 2 Matter to the consideration and vote of
the Corporation's Board of Directors, with such matter requiring the
majority vote of the Corporation's Board of Directors for approval, and
(iii) submit a Category 3 Matter to the consideration and vote of the
Corporation's Board of Directors, with such matter requiring a 66 2/3% vote
of the Corporation's Board of Directors for approval.
b. If the Corporation's Board of Directors at any such meeting that is
not held jointly with Patriot's Board of Directors shall have approved any
Category 2 Matter or Category 3 Matter, the Corporation's
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Board of Directors shall promptly provide notice (the "Board Notice") to
Patriot in accordance with the terms of the Cooperation Agreement of the
occurrence of such meeting and the Category 2 Matters or Category 3 Matters
approved at such meeting. The Cooperation Committee shall convene promptly
(in any event, within ten (10) business days) following the Corporation's
Board of Directors meeting to consider the actions taken by the
Corporation's Board of Directors. If the Cooperation Committee votes to
approve the action taken by the Corporation's Board of Directors with
respect to any such matter, then the action authorized by the Corporation's
Board of Directors may be implemented without consideration of such matter
by Patriot's Board of Directors. If the Cooperation Committee does not
approve the action taken by the Corporation's Board of Directors, Patriot's
Board of Directors may then hold a meeting within fifteen (15) business
days following receipt of the Board Notice to consider and vote upon the
Category 2 Matters or Category 3 Matters approved by the Corporation's
Board of Directors and during such period the action authorized by the
Corporation's Board of Directors may not be implemented. In the event that
Patriot's Board of Directors approves at such a meeting the action taken by
the Corporation's Board of Directors or Patriot's Board of Directors does
not hold a meeting within fifteen (15) business days following receipt of
the Board Notice, the action authorized by the Corporation's Board of
Directors may thereafter be implemented.
c. In the event Patriot's Board of Directors holds a meeting within
fifteen (15) business days following receipt of the Board Notice but does
not approve the action authorized by the Corporation's Board of Directors,
the action authorized by the Corporation's Board of Directors may not be
implemented. In such an event, the Cooperation Committee will convene
promptly following the meeting of Patriot's Board of Directors to consider
the contrary positions of the Corporation's Board of Directors and
Patriot's Board of Directors and recommend a resolution of such contrary
positions in connection with the reconsideration process described below
(the "Reconsideration Process"). The Boards of Directors of the Corporation
and Patriot will then follow the Reconsideration Process.
d. At any joint meeting of the Boards of Directors of Patriot and the
Corporation, in the event that the Corporation's Board of Directors
approves a Category 2 Matter or Category 3 Matter but Patriot's Board of
Directors does not, the action authorized by the Corporation's Board of
Directors may not be implemented. The Cooperation Committee shall convene
immediately following the joint meeting (unless a quorum of the Cooperation
Committee is not present, in which case the Cooperation Committee shall
convene as soon as practicable thereafter) to consider the votes of the
Boards of Directors of the Corporation and Patriot taken at such meeting.
The Boards of Directors of the Corporation and Patriot will then follow the
Reconsideration Process described below.
5. Reconsideration Process. Following any meeting of the Cooperation
Committee as described above, the Corporation's Board of Directors may
reconsider a Category 2 Matter at any subsequent meeting of the Corporation's
Board of Directors and, if the Corporation's Board of Directors approves such
matter by a majority vote at such subsequent meeting, then the Corporation's
Board of Directors may take the action contemplated by such matter regardless
of the position of Patriot's Board of Directors. Following any meeting of the
Cooperation Committee as described above, the Corporation's Board of Directors
may reconsider a Category 3 Matter at any subsequent meeting of the
Corporation's Board of Directors and, if the Corporation's Board of Directors
approves such matter by a 66 2/3% vote at such subsequent meeting, then the
Corporation's Board of Directors may take the action contemplated by such
matter (but only if Patriot's Board of Directors approves such matter by a
majority vote in the case of a Change of Control).
6. Hotel Acquisitions Committee. The Corporation shall establish with
Patriot, as promptly as practicable following the closing of the Merger, and
thereafter to continue in effect as provided herein, a hotel acquisitions
committee (the "Hotel Acquisitions Committee") to analyze, evaluate and
consider potential acquisitions by the Corporation of hotel properties and
related assets (which properties and related assets may consist of a portfolio
of hotel properties and related assets, and which may be acquired in any form,
such as by merger, asset acquisitions or otherwise) ("Hotel Acquisitions").
The Hotel Acquisitions Committee shall have the sole power and authority to
authorize the Corporation to enter into a binding agreement with respect to
Hotel Acquisitions involving a proposed purchase price (inclusive of any
indebtedness to be assumed in connection therewith) not
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exceeding (with respect to each Hotel Acquisition or such series of Hotel
Acquisitions as are reasonably likely to be considered an integrated
transaction) 5% of the total combined market capitalization of the Corporation
and Patriot (which for such purposes shall include, without limitation, the
aggregate number of outstanding shares of Paired Equity, including equity
securities of the Corporation or Patriot that are convertible into Paired
Equity, and including limited partnership interests or units of Patriot OP or
OPCO OP for which Paired Equity may be received upon redemption of such
interests or units by the holders thereof, in each case valued at the market
value for the underlying Paired Equity) computed as of the last business day
of the month immediately preceding the month during which such Hotel
Acquisition is to be authorized and based on the average closing sale price of
a Paired Share over the five (5) trading days immediately preceding such
business day. The members of the Hotel Acquisitions Committee shall be
determined as provided in the Cooperation Agreement. Notwithstanding the
foregoing, the Hotel Acquisitions Committee shall no longer have the power and
authority described herein on and after the third anniversary of the Merger.
7. Limitation on Committees. For the term of the Cooperation Agreement, the
formation by the Corporation's Board of Directors of either (i) an executive
or similar committee of the Corporation's Board of Directors which is
authorized to act upon any Category 2 Matter or Category 3 Matter or (ii) a
nomination committee for the purpose of nominating directors shall require the
approval of the Board of Directors of Patriot.
8. Voting by Directors. Any vote on any matter by the Board of Directors of
the Corporation or the members of the Cooperation Committee or the Unpaired
Equity Committee provided for herein shall require for approval the
affirmative vote of the applicable number or percentage of all of the members
of either such Board of Directors then in office or the then existing members
of any such committee, as the case may be.
G. Issuance of Paired and Unpaired Equity.
1. Definitions. For the purposes of Section G of this Article V the
following terms shall have the meanings set forth below:
"Action" means any demand, action, suit, countersuit, arbitration,
inquiry, proceeding or investigation by or before any federal, state,
local, foreign or international Governmental Authority or any arbitration
or mediation tribunal.
"Governmental Authority" means any federal, state, local, foreign or
international court, government, department, commission, board, bureau,
agency, official or other regulatory, administrative or governmental
authority.
"Merger" shall have the meaning set forth in Section F of Article V
above.
"Issuance of Paired Equity" shall have the meaning set forth in Section F
of Article V above.
"Issuance of Unpaired Equity" shall have the meaning set forth in Section
F of Article V above.
"Paired Equity Officer/Director" means any officer or officers of Patriot
designated by Patriot's Board of Directors, from time to time, to be a
Paired Equity Officer/Director pursuant to Section (G)(2)(b) hereof.
"Paired Shares" or "Paired Equity" shall have the meaning set forth in
Section F of Article V above.
"Patriot" shall have the meaning set forth in Section F of Article V
above.
"Unpaired Equity Committee" means that committee whose members shall
consist of (i) the Chairman of Patriot's Board of Directors, (ii) the
Chairman of the Corporation's Board of Directors, (iii) two designees of
Patriot from either Patriot's or the Corporation's Board of Directors and
(iv) one designee of the Corporation from either Patriot's or the
Corporation's Board of Directors. Upon consummation of the Merger, the
members of the Unpaired Equity Committee shall consist of (i) Paul A.
Nussbaum until such time as he shall no longer serve as Chairman of
Patriot's Board of Directors and, after such time, the Chairman of
Patriot's Board of Directors, (ii) James D. Carreker until such time as he
shall no longer serve as Chairman of the Corporation's Board of Directors
and, after such time, the Chairman of the Corporation's Board of Directors,
(iii) two designees of Patriot from either Patriot's or the Corporation's
Board of Directors and (iv) one designee of the Corporation from either
Patriot's or the Corporation's Board of Directors.
2. Authority to Issue Paired Equity.
a. From and after the date of the Cooperation Agreement until the date
(the "Termination Date") which is twelve (12) months after the date on
which the Pairing Agreement is no longer in effect, Patriot's
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Board of Directors shall have the sole right to authorize and to effect, or
to cause the Corporation to effect, an Issuance of Paired Equity and to
take or cause to be taken any and all action in contemplation of, or in
connection with, an Issuance of Paired Equity and the Corporation's bylaws
shall so provide. In connection therewith, Patriot's Board of Directors
shall also have the authority to cause the Corporation to comply with the
procedures set forth in Section (G)(3) below.
b. Patriot shall be entitled to designate from time to time one or more
officers of Patriot to serve as a Paired Equity Officer/Director, and any
such officer so designated shall also serve as a vice president and
assistant secretary of the Corporation for so long as he or she is serving
as a Paired Equity Officer/Director. Any Paired Equity Officer/Director may
resign or be removed by Patriot at any time and, at any time thereafter,
Patriot may designate a new Paired Equity Officer/Director. Upon such
appointment, any Paired Equity Officer/Director shall have the express
authority to do any and all acts and things related to any Issuance of
Paired Equity, including, without limitation, the execution and delivery in
the name and on behalf of the Corporation of any and all documents,
certificates (including stock certificates) and other instruments necessary
or appropriate in connection with the issuance of any Corporation Paired
Stock pursuant to an Issuance of Paired Equity, the engagement of
investment bankers, accountants, attorneys and other professionals, and the
incurrence of any and all other transaction costs related thereto.
c. The Corporation shall at all times and in all circumstances maintain
and support the position that Patriot has the sole right and power to
authorize and effect, or to cause the Corporation to effect, the Issuance
of Paired Equity and the Corporation shall not assert otherwise in any
forum, proceeding, Action or communication or take any other action which
is inconsistent with its obligations hereunder.
3. Procedures in Connection with Issuance of Paired Equity. Upon receipt of
notice by Patriot of a determination by Patriot to engage in an Issuance of
Paired Equity, the Corporation and the Directors of the Corporation shall
promptly cooperate with Patriot in every way to effect such Issuance of Paired
Equity pursuant to the terms and schedule thereof as established by Patriot
including, without limitation, the actions set forth in Section 3.3(b) of the
Cooperation Agreement.
4. Authority to Issue of Unpaired Equity. The Unpaired Equity Committee
shall be established jointly by the Corporation and Patriot. The Corporation
shall have the right to engage in an Issuance of Unpaired Equity only upon the
affirmative vote of a majority of the members of the Unpaired Equity
Committee.
VI.
Limitation of Liability
Neither a director of the Corporation, a member of Patriot's Board of
Directors nor a member of any duly authorized and constituted committee of the
Corporation or the Board of Directors of the Corporation, including without
limitation, the Cooperation Committee, the Hotel Acquisitions Committee and
the Unpaired Equity Committee, shall be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director or as such a member, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any
transaction from which the director derived an improper personal benefit. If
the DGCL is amended after the effective date of this Certificate to authorize
corporate action further eliminating or limiting the personal liability of
directors or the person or persons exercising or performing any of the powers
or duties otherwise conferred or imposed upon directors of the Corporation,
then the liability of the director of the Corporation or the person or persons
exercising or performing any of the powers or duties otherwise conferred or
imposed upon directors of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL, as so amended.
Any repeal or modification of this Article VI by either (i) the stockholders
of the Corporation or (ii) an amendment to the DGCL shall not adversely affect
any right or protection existing at the time of such repeal or modification
with respect to any acts or omissions occurring before such repeal or
modification of a person serving as a director at the time of such repeal or
modification.
G-17
<PAGE>
VII.
Related Person Transaction
The affirmative vote of the holders of not less than 66 2/3% of the
outstanding shares of capital stock of this Corporation, which shall include
the affirmative vote of at least 50% of the outstanding shares of capital
stock held by shareholders other than a "Related Person" (as hereinafter
defined), shall be required for the approval or authorization of any "Business
Combination" (as hereinafter defined) of this Corporation with any Related
Person; provided, however, that such 66 2/3% voting requirement shall not be
applicable if the Business Combination was approved by the Board of Directors
of the Corporation prior to the acquisition by such Related Person of the
beneficial ownership of 5% or more of the outstanding shares of the capital
stock of the Corporation.
For purposes of this Article VII:
1. The term "Business Combination" shall mean (a) any merger,
reorganization or consolidation of this Corporation with or into a Related
Person, (b) any sale, lease, exchange, transfer or other disposition,
including, without limitation, a mortgage or any other security device, of
all or any substantial part of the assets of this Corporation (including,
without limitation, any voting securities of a subsidiary) or of a
subsidiary, to a Related Person, (c) any merger or consolidation of a
Related Person with or into this Corporation or a subsidiary of this
Corporation and (d) any sale, lease, exchange, transfer or other
disposition of all or any substantial part of the assets of a Related
Person to this Corporation or a subsidiary of this Corporation.
2. The term "Related Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
"affiliates" and "associates" (defined below), beneficially (as defined in
Rule 13d-3 of the Securities Exchange Act of 1934), owns in the aggregate
five percent (5%) or more of the outstanding shares of the capital stock of
this Corporation, and any "affiliate" or "associate" (as those terms are
defined in Rule 12b-2 of the Exchange Act) of any such individual,
corporation, partnership or other person or entity; provided, however, that
the term "Related Person" shall not include either Patriot or any
subsidiary of this Corporation.
3. The term "substantial part of the assets" shall mean assets having a
fair market value or book value, whichever is greater, equal to 25% or more
of such value of the total assets as reflected on the most recent quarterly
balance sheet of the Corporation as of a date no earlier than forty-five
(45) days prior to any acquisition of such assets.
4. Without limitation, any share of capital stock of this Corporation
which any Related Person has the right to acquire pursuant to any agreement
or upon exercise of conversion rights, warrants or options, or otherwise
shall be deemed beneficially owned by such Related Person.
The provisions set forth in this Article VII may not be repealed or amended
in any respect, unless such action is approved by the affirmative vote of the
holders of not less than 66 2/3% of the outstanding shares of capital stock of
this Corporation; provided, however, that if there is a Related Person (as
defined herein), such 66 2/3% vote must include the affirmative vote of at
least 50% of the outstanding shares of capital stock held by shareholders
other than the Related Person.
VIII.
Amendment of Bylaws
A. Amendment By the Board of Directors. Except as otherwise provided by law
or this Certificate, the Bylaws of the Corporation may be amended or repealed
by the Board of Directors by the affirmative vote of a majority of the
directors then in office.
G-18
<PAGE>
B. Amendment By the Stockholders. The Bylaws of the Corporation may be
amended or repealed at any annual meeting of stockholders, or special meeting
of stockholders called for such purpose, by the affirmative vote of at least
two-thirds of the shares present in person or represented by proxy at such
meeting and entitled to vote on such amendment or repeal, voting together as a
single class; provided, however, that if the Board of Directors recommends
that stockholders approve such amendment or repeal at such meeting of
stockholders, such amendment or repeal shall only require the affirmative vote
of the majority of the shares present in person or represented by proxy at
such meeting and entitled to vote on such amendment or repeal, voting together
as a single class.
IX.
Amendment of Certificate of Incorporation
Subject to Article VII of this Certificate, the Corporation reserves the
right to amend or repeal this Certificate in the manner now or hereafter
prescribed by statute and this Certificate, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided however,
that any amendment, repeal or modification of Sections (D)(2), F and G of
Article V shall first require a 66 2/3% vote of the Corporation's Board of
Directors and Patriot's Board of Directors.
G-19
<PAGE>
REAL ESTATE INVESTMENT BANKING
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019 ANNEX H
212 713-4020
212 713-7949 Fax LOGO
Terrence E. Fancher
July 24, 1997
Managing Director
Board of Directors
Patriot American Hospitality, Inc.
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Board of Directors
Patriot American Hospitality Operating Company
3030 LBJ Freeway, Suite 1500
Dallas, Texas 75234
Ladies and Gentlemen:
We understand that Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), as predecessor by merger to Patriot American
Hospitality, Inc., a Virginia corporation ("Old Patriot"), is a party to that
certain Agreement and Plan of Merger dated as of April 14, 1997 (the "Merger
Agreement") with Wyndham Hotel Corporation ("Wyndham"), pursuant to which
Wyndham has agreed to merge with and into Patriot, with Patriot surviving (the
"Proposed Merger"). We also understand that Patriot is a party to that certain
Stock Purchase Agreement dated as of April 14, 1997 (the "Stock Purchase
Agreement") with CF Securities, L.P. ("CF Securities"), pursuant to which
Patriot has agreed to purchase all of the shares of common stock of Wyndham
beneficially owned by CF Securities (the "Proposed Stock Purchase" and,
together with the Proposed Merger, the "Proposed Transactions"). We understand
that pursuant to the Merger Agreement, upon consummation of the Proposed
Merger, issued and outstanding shares of common stock of Wyndham will be
converted into the right to receive shares (the "Paired Shares") of common
stock of Patriot which are paired and trade as a unit with shares of Patriot
American Hospitality Operating Company, a Delaware corporation (the "Operating
Company", and together with Patriot, the "Companies"), in accordance with the
Exchange Ratio set forth in the Merger Agreement. We further understand that
pursuant to the Merger Agreement, the respective Boards of Directors of
Patriot and the Operating Company have ratified the Merger Agreement and the
transactions contemplated thereby pursuant to the Patriot Ratification
Agreement and the BMOC Ratification Agreement. We further understand that
pursuant to the Stock Purchase Agreement, upon consummation of the Proposed
Stock Purchase, CF Securities will receive Paired Shares and shares of
unpaired Series A Convertible Preferred Stock, in each case at the Exchange
Ratio set forth in the Merger Agreement. We further understand that Wyndham
stockholders and CF Securities have a limited right (the "Cash Election") to
elect to receive cash (up to an aggregate of $100 million) in lieu of Paired
Shares in the Merger and pursuant to the Stock Purchase Agreement in an amount
per share equal to the Exchange Ratio multiplied by the average closing price
of a Paired Share over the five trading days immediately preceding the Closing
Date of the Merger. You have advised us, and we have assumed for purposes of
our opinion, that the shares of unpaired Series A Convertible Preferred Stock
issued to CF Securities will be structured so as to be economically equivalent
(including with respect to the payment of dividends and payment upon
liquidation, dissolution or winding up of the Companies) to Paired Shares and
will be convertible (under certain circumstances) only into a like number of
Paired Shares. All capitalized terms not otherwise defined herein shall have
the meanings set forth in the Merger Agreement.
H-1
<PAGE>
PAINEWEBBER
Boards of Directors
Page 2
July 24, 1997
You have requested our opinion as to the fairness, from a financial point of
view, of the Merger Consideration (including the consideration to be paid to
CF Securities pursuant to the Stock Purchase Agreement) to the Companies'
stockholders.
We understand that the Proposed Transaction will be accounted for under the
purchase method of accounting.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed Old Patriot's Annual Report, Form 10-K and related financial
information for the fiscal years ended December 31, 1995 and 1996, the
Form 10-Q and the related unaudited financial information for the
quarterly period ended March 31, 1997, and the joint proxy statement
and prospectus filed on June 2, 1997 regarding the merger of Old
Patriot with and into California Jockey Club;
(2) Reviewed Wyndham's Registration Statements, relating to the concurrent
initial public offering of Wyndham Common Stock and Wyndham Senior
Subordinated Notes in May 1996, and all amendments thereto, the Form
10-K and the related financial information for the fiscal year ended
December 31, 1996, the Form 10-Q and the related unaudited financial
information for the quarterly period ended March 31, 1997, and
preliminary unaudited financial information for the quarterly period
ended June 30, 1997;
(3) Reviewed certain information, including financial forecasts relating
to the business, earnings, cash flow, assets and prospects of the
Companies and Wyndham, furnished to us by the Companies and Wyndham,
respectively, including financial forecasts which take into account,
among other things, Wyndham's acquisition of ClubHouse Hotels, Inc.;
(4) Reviewed certain information, including financial forecasts relating
to the business, cash flow, earnings and prospects of the hotels and
related assets (the "Crow Family Assets") to be acquired by certain
operating partnerships of the Companies (the "Crow Asset Acquisition")
on the terms set forth in that certain Omnibus Purchase and Sale
Agreement dated as of April 14, 1997, by and among the partnerships
set forth in Schedule I thereto and Patriot American Hospitality
Partnership, L.P. (the "Crow Asset Agreement"), such information
having been prepared by Wyndham and furnished to us at your direction;
(5) Conducted discussions with members of senior management of the
Companies and Wyndham, concerning their respective businesses and
prospects;
(6) Compared the results of operations of Wyndham with that of certain
companies which we deemed to be reasonably similar to Wyndham;
(7) Compared the acquisition price of the Proposed Transactions relative
to the financial performance of Wyndham with the acquisition price
relative to the financial performance of certain other acquired
companies in other mergers and acquisitions which we deemed to be
relevant;
(8) Considered the pro forma effect of the Proposed Transactions and the
Crow Asset Acquisition on the Companies' funds from operations and
other financial measures;
(9) Reviewed the financial terms of the Merger Agreement, the Stock
Purchase Agreement and the Crow Asset Agreement; and
(10) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary.
H-2
<PAGE>
PAINEWEBBER
Boards of Directors
Page 3
July 24, 1997
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was either publicly available or supplied, communicated
or otherwise made available to us by or on behalf of the Companies and
Wyndham, and we have not assumed any responsibility to independently verify
such information, conduct a physical inspection of the properties and
facilities of the Companies or Wyndham or undertake an independent appraisal
of the assets of the Companies or Wyndham. With respect to the financial
forecasts examined by us, we have assumed that they were reasonably prepared
on bases reflecting the best currently available estimates and good faith
judgments of the respective managements of the Companies and Wyndham as to the
future performance of the Companies and Wyndham, respectively, and their
respective assets. With respect to the financial forecasts for the Crow Family
Assets, we have assumed that they were reasonably prepared on bases reflecting
the best currently available estimates and good faith judgments of Wyndham as
to the future performance of such prospects. At the Companies' direction, we
have assumed that Patriot is not and, after the Proposed Transactions, will
not be, subject to Section 269B(a)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"), that Patriot will qualify to be treated as a "real
estate investment trust" within the meaning of the Code before and after
giving effect to the Proposed Transactions, that the representations and
warranties of each of the parties to the Merger Agreement were true and
correct as of the date of the Merger Agreement or as of such other date or
dates specified therein and will be true and correct at the closing of the
Merger to the extent required to be true and correct on such date under the
terms of the Merger Agreement, in each case subject to such qualifications as
may be specified therein, and that the Merger will be treated as a tax-free
reorganization for federal income tax purposes. We have further assumed that
the Proposed Transactions will be consummated in accordance with the terms
described in the Merger Agreement and the Stock Purchase Agreement. Our
analyses used in preparing our opinion assumed a closing date of the Proposed
Transactions of December 1, 1997. Our opinion is based upon regulatory,
economic, monetary and market conditions existing on the date hereof. We have
assumed, with your consent, that all material assets and liabilities
(contingent or otherwise, known or unknown) of the Companies and Wyndham are
as set forth in their respective consolidated financial statements.
This opinion does not address the business decision of the Boards of
Directors of the Companies to engage in the Proposed Transactions or the
relative merits of the Proposed Transactions and any other transactions or
business strategies discussed by the respective Boards of Directors of the
Companies as alternatives to the Proposed Transactions, or constitute a
recommendation to any of the Companies' stockholders as to how any such
stockholders should vote on the Proposed Transactions. No opinion is expressed
herein as to the price or trading range at which the Companies' stock may
trade at any time.
This opinion has been prepared for your use and shall not be reproduced,
summarized, described or referred to, or given to any other person or
otherwise made public, without the prior written consent of PaineWebber
Incorporated; provided, however, that this letter may be reproduced in full in
a proxy statement/prospectus relating to the Proposed Transactions.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Merger Consideration (including the consideration
to be paid to CF Securities pursuant to the Stock Purchase Agreement) is fair
from a financial point of view to the Companies' stockholders.
We bring to your attention that, as you are aware, PaineWebber Incorporated
is currently acting as financial advisor to the Companies and will receive a
fee for rendering this opinion and will receive an additional fee upon
consummation of the Proposed Transactions. In the past, PaineWebber
Incorporated has provided financial advisory services and investment banking
services to the Companies (including acting as an underwriter for the
H-3
<PAGE>
PAINEWEBBER
Boards of Directors
Page 4
July 24, 1997
Companies and Old Patriot) and may do so in the future. In the ordinary course
of our business, we trade the equity and debt securities of the Companies and
Wyndham for our own account and for the accounts of our customers and,
accordingly, we may at any time hold short or long positions in such
securities. As you are also aware, we and certain executive officers and
directors of the Companies have entered into certain agreements regarding
joint investments and/or acquisitions (and financing therefor), and an
affiliate of ours has recently acquired certain land in San Mateo, California
from Patriot and is leasing the land back to a subsidiary of Patriot.
Very truly yours,
PaineWebber Incorporated
LOGO
Terrence E. Fancher
H-4
<PAGE>
ANNEX I
212-816-6000
LOGO
April 14, 1997
The Board of Directors
Wyndham Hotel Corporation
2001 Bryan Street
Dallas, Texas 75201
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Wyndham Hotel Corporation
("Wyndham") of the consideration to be received by such holders pursuant to
the terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of April 14, 1997 (the "Merger Agreement"), by and between
Patriot American Hospitality, Inc. ("Patriot") and Wyndham. As more fully
described in the Merger Agreement, (A) pursuant to an Agreement and Plan of
Merger dated as of February 24, 1997 by and among Patriot, California Jockey
Club ("Cal Jockey") and Bay Meadows Operating Company ("Bay Meadows"), Patriot
will merge with and into Cal Jockey, with Cal Jockey being the surviving
entity in such merger (such transaction, the "Cal Jockey Transaction" and, the
surviving entity resulting from the Cal Jockey Transaction, "New Patriot"),
and Bay Meadows will thereafter be referred to as Patriot Operating Company
("Patriot Opco"), and (B) subsequent to the consummation of the Cal Jockey
Transaction, (i) Wyndham will be merged with and into New Patriot (the
"Merger") and (ii) each outstanding share of the common stock, par value $0.01
per share, of Wyndham (the "Wyndham Common Stock") will be converted, subject
to the cash election described below, into the right to receive 0.712 of a
share (subject to adjustment as described below, the "Exchange Ratio") of the
(x) common stock, par value $0.01 per share, of New Patriot (the "New Patriot
Common Stock") and (y) the common stock, par value $0.01 per share, of Patriot
Opco (the "Patriot Opco Common Stock"), which shares of New Patriot Common
Stock and Patriot Opco Common Stock will be paired and transferable and traded
only in combination as a single unit (the "Paired Shares"); provided that, if
the average per share closing price of a Paired Share as reported on The New
York Stock Exchange (the "NYSE") over the 20 trading days immediately
preceding the fifth business day prior to the date on which Wyndham's
stockholders' meeting is held to approve the Merger (the "Average Closing
Price") is less than $42.13 per share but greater than or equal to $40.21 per
share, then each outstanding share of Wyndham Common Stock will be converted
into the right to receive that number of Paired Shares equal to $30.00 divided
by the Average Closing Price, subject to further adjustment if the Average
Closing Price is less than $40.21 per share, in which event each outstanding
share of Wyndham Common Stock will be converted into the right to receive
0.746 of a Paired Share (the total number of Paired Shares into which shares
of Wyndham Common Stock will be so converted in the Merger, the "Stock
Consideration"). Pursuant to the terms of the Merger Agreement and subject to
certain allocation and proration procedures specified therein (as to which we
express no opinion), holders of Wyndham Common Stock may elect to convert all
or a portion of their shares of Wyndham Common Stock into the right to receive
cash in an amount equal to the product of (x) the average closing price of the
Paired Shares on the NYSE over the five trading days immediately preceding the
closing date of the Merger (the "Fair Market Value") and (y) the Exchange
Ratio, subject to a maximum cash amount in respect of all such cash elections
(together with any cash election made by CF Securities, L.P. in connection
with certain related transactions contemplated by the Merger Agreement) of
$100 million in the aggregate (the total cash amount into which shares of
Wyndham Common Stock will be so converted in the Merger, the "Cash
Consideration" and, together with the Stock Consideration, the "Merger
Consideration"). The Merger
I-1
SMITH BARNEY INC. 388 Greenwich Street, New York, NY 10013
<PAGE>
The Board of Directors
Wyndham Hotel Corporation
April 14, 1997
Page 2
Agreement further provides that if receipt of Paired Shares in the Merger by a
holder of Wyndham Common Stock would cause certain ownership limitations
necessary for the combined entity resulting from the Merger (the "Surviving
Corporation") to qualify and maintain its status as a real estate investment
trust (a "REIT") to be exceeded (the "Excess Paired Shares"), then such holder
will be entitled to receive, in lieu of such Excess Paired Shares, an amount
in cash equal to the product of (x) the Fair Market Value and (y) the number
of such Excess Paired Shares.
It is our understanding that, as contemplated by the Merger Agreement and
more fully described in an Omnibus Purchase and Sale Agreement to be entered
into contemporaneously with the Merger Agreement by and among Patriot and
certain entities owned or controlled by the Trammell Crow family and/or
various descendants thereof (the "Crow Entities"), certain real estate and
related assets will be sold by the Crow Entities to Patriot Operating
Partnership and an operating partnership to be formed in connection with the
Cal Jockey Transaction concurrently with, or immediately prior to, the
consummation of the Merger (the "Asset Sale" and, such real estate and related
assets, the "Real Estate Assets").
In arriving at our opinion, we reviewed the Merger Agreement and certain
related documents and held discussions with certain senior officers, directors
and other representatives and advisors of Wyndham and certain senior officers
and other representatives and advisors of Patriot concerning the businesses,
operations and prospects of Wyndham and Patriot. We examined certain publicly
available business and financial information relating to Wyndham and Patriot
as well as certain financial forecasts and other information and data for
Wyndham and Patriot which were provided to or otherwise discussed with us by
the respective managements of Wyndham and Patriot, including information
relating to certain strategic implications and operational benefits
anticipated to result from the Merger. We reviewed the financial terms of the
Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of Wyndham
Common Stock and the common stock, par value $0.01 per share, of Patriot; the
historical and projected earnings and other operating data of Wyndham and
Patriot; and the capitalization and financial condition of Wyndham and
Patriot. We considered, to the extent publicly available, the financial terms
of other transactions recently effected which we considered relevant in
evaluating the Merger and analyzed certain financial, stock market and other
publicly available information relating to the businesses of other companies
whose operations we considered relevant in evaluating those of Wyndham and
Patriot. We also evaluated the potential pro forma financial impact of the
Merger on Patriot, after giving effect to the Asset Sale and the consummation
of the Cal Jockey Transaction and certain of Patriot's other planned
acquisitions. In connection with our engagement, we were requested to approach
on a limited basis, and held discussions with, certain third parties to
solicit indications of interest in a possible acquisition of Wyndham. In
addition to the foregoing, we conducted such other analyses and examinations
and considered such other financial, economic and market criteria as we deemed
appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed
by or discussed with us. With respect to financial forecasts and other
information and data provided to or otherwise reviewed by or discussed with
us, we have been advised by the managements of Wyndham and Patriot that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
managements of Wyndham and Patriot as to the future financial performance of
Wyndham and Patriot and the strategic implications and operational benefits
anticipated
I-2
<PAGE>
The Board of Directors
Wyndham Hotel Corporation
April 14, 1997
Page 3
to result from the Merger. We have assumed, with your consent, that the Merger
will be treated as a tax-free reorganization for federal income tax purposes.
We also have assumed, with your consent, that the Cal Jockey Transaction will
be consummated prior to the Merger, that the Asset Sale will occur
concurrently with, or immediately prior to, the Merger, and that neither the
Cal Jockey Transaction nor the Merger or the transactions contemplated thereby
(including, without limitation, the Asset Sale) will adversely affect the REIT
status of the Surviving Corporation. We are not expressing any opinion as to
what the value of the Paired Shares actually will be when issued to Wyndham
stockholders pursuant to the Merger or the price at which the Paired Shares
will trade or otherwise be transferable subsequent to the Merger. We have not
made or been provided with an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of Wyndham, Patriot or the
Real Estate Assets nor have we made any physical inspection of the properties
or assets of Wyndham, Patriot or the Real Estate Assets. Our opinion is
necessarily based upon information available to us, and financial, stock
market and other conditions and circumstances existing and disclosed to us, as
of the date hereof.
Smith Barney has been engaged to render financial advisory services to
Wyndham in connection with the proposed Merger and will receive a fee for such
services, a significant portion of which is contingent upon the consummation
of the Merger. We also will receive a fee in connection with the delivery of
this opinion. In the ordinary course of our business, we and our affiliates
may actively trade or hold the securities of Wyndham, Patriot and Cal Jockey
for our own account or for the account of our customers and, accordingly, may
at any time hold a long or short position in such securities. We have in the
past provided investment banking services to Wyndham unrelated to the proposed
Merger, for which services we have received compensation. In addition, we and
our affiliates (including Travelers Group Inc. and its affiliates) may
maintain relationships with Wyndham, Patriot and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Wyndham in its evaluation of the
proposed Merger, and our opinion is not intended to be and does not constitute
a recommendation to any stockholder as to how such stockholder should vote on
the proposed Merger. Our opinion may not be published or otherwise used or
referred to, nor shall any public reference to Smith Barney be made, without
our prior written consent.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Merger Consideration is
fair, from a financial point of view, to the holders of Wyndham Common Stock.
Very truly yours,
Smith Barney Inc.
I-3
<PAGE>
April 14, 1997
Special Committee of the Board of Directors
Wyndham Hotel Corporation
2001 Bryan Street, Suite 2300
Dallas, Texas 75201
Members of the Special Committee:
Wyndham Hotel Corporation (the "Company") and Patriot American Hospitality,
Inc. (the "Purchaser") propose to enter into an Agreement and Plan of Merger
(the "Agreement") pursuant to which the Company will be merged (the "Merger")
with the successor by merger to the Purchaser in the Patriot/California Jockey
Merger referred to below. The Agreement provides that, as a condition and prior
to the Merger, the Purchaser will engage in a business combination with
California Jockey Club ("California Jockey") and Bay Meadows Operating Company
("Bay Meadows") pursuant to which, among other things, the Purchaser will be
merged (the "Patriot/California Jockey Merger") with and into California
Jockey, with California Jockey being the surviving company. The Agreement
provides that in the Merger each outstanding share of common stock, par value
$.01, of the Company (the "Company Shares"), other than Company Shares, if any,
held by the Company, the Purchaser, Bay Meadows or any subsidiary of the
Purchaser or Bay Meadows, all of which shall be canceled and retired, will be
converted into the right to receive, at the election of the holder thereof and
subject to certain proration provisions, either (i) 0.712 shares of the common
stock, par value $.01 per share, of California Jockey and of the common stock,
par value $.01, of Bay Meadows, which shares are paired and transferable only
in combination as a single unit (the "Paired Shares"), subject to adjustment as
provided in the Agreement (the "Exchange Ratio"), or (ii) cash in an amount
equal to the product of the Exchange Ratio multiplied by the average closing
price of the Paired Shares reported on the New York Stock Exchange for each of
the five trading days immediately preceding the closing of the Merger, subject
to an aggregate cash limitation of $100 million as more fully described
therein. For purposes of our opinion, the term "Consideration" means the
aggregate amount of the Paired Shares and cash referred to in clauses (i) and
(ii) above to be received by the holders of the Company Shares in the Merger.
The terms and conditions of the Merger are more fully set forth in the
Agreement.
In connection with the Agreement, we understand that Mr. and Mrs. Trammell
Crow, various descendants of Mr. and Mrs. Trammell Crow, and various
corporations, partnerships, trusts and other entities beneficially owned or
controlled by such persons (collectively, the "Crow Family Members"), who
beneficially own in the aggregate approximately 48% of the outstanding Company
Shares, propose to enter into an agreement (the ANNEX J
LOGO
J-1
<PAGE>
"Omnibus Purchase and Sale Agreement") with an affiliate of the Purchaser and
an affiliate of Bay Meadows, as purchasers, pursuant to which, among other
things, as a condition and prior to the Merger, they will sell certain of
their real estate and related assets to such purchasers for cash plus
additional contingent consideration (the "Crow Family Assets"). In addition,
we understand that a principal stockholder of the Company, which is one of the
Crow Family Members, proposes to enter into an agreement with the Purchaser
(the "Stock Purchase Agreement") pursuant to which, among other things, as a
condition and prior to the Merger, it will sell to the Purchaser and Bay
Meadows all of its Company Shares in exchange for a combination of Paired
Shares, shares of unpaired Class A preferred stock of the Purchaser, and cash.
You have asked us whether, in our opinion, the Consideration to be received
by the holders of the Company Shares (other than the Crow Family Members) in
the Merger is fair to such holders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial information
relating to the Company and Purchaser which we deemed to be relevant;
(2) Reviewed the terms and conditions of the Agreement and Plan of Merger
(the "Patriot/California Jockey/Bay Meadows Agreement"), dated as of
February 24, 1997, among the Purchaser, Patriot American Hospitality
Partnership, L.P., California Jockey and Bay Meadows, and reviewed
certain publicly available business and financial information relating
to California Jockey and Bay Meadows;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets, liabilities and prospects
of the Company and the Purchaser (including, in the case of the
Purchaser, certain information and financial forecasts prepared by
management of the Purchaser relating to California Jockey and Bay
Meadows, as well as certain other companies which the Purchaser may
seek to acquire or in which the Purchaser may seek to make an
investment, including the Bellemead Development unit of Chubb Corp.
(collectively, the "Contemplated Transactions"), and certain
information and financial forecasts prepared by the Crow Family Members
relating to the Crow Family Assets), furnished to us by the Company and
the Purchaser, respectively;
(4) Conducted discussions with members of senior management of the Company
concerning the Company's businesses, future acquisition plans and
strategies, and prospects before and after giving effect to the Merger;
(5) Conducted discussions with members of senior management of the
Purchaser concerning the Purchaser's businesses, future acquisition
plans and strategies (including plans and strategies with respect to
the Contemplated Transactions), and prospects before and after giving
effect to the Merger;
(6) Conducted discussions with certain representatives of the Crow Family
Members concerning the Crow Family Assets;
(7) Reviewed the historical market prices and valuation multiples for the
Company Shares, the common stock, no par value, of the Purchaser, and
the Paired Shares, and compared them with those of certain publicly
traded companies which we deemed to be relevant;
(8) Reviewed the results of operations of the Company and the Purchaser and
compared them with those of certain companies which we deemed to be
relevant;
LOGO
J-2
<PAGE>
LOGO
(9) Compared the proposed financial terms of the Merger with the financial
terms of certain other transactions which we deemed to be relevant;
(10) Reviewed the potential pro forma impact of the Merger;
(11) Reviewed the Agreement, the Omnibus Purchase and Sale Agreement, the
Stock Purchase Agreement, and the proxy agreement among the Purchaser
and certain stockholders and executive officers of the Company (the
"Proxy Agreement"); and
(12) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our
assessment of general economic, market and monetary conditions.
In preparing our opinion, we have neither received nor reviewed any
financial projections or other non-public information prepared by California
Jockey, Bay Meadows or of any of the companies which are the subject of any of
the Contemplated Transactions pertaining to the future prospects of California
Jockey, Bay Meadows or any of such companies, respectively.
In preparing our opinion, we have assumed, with your consent, that the
Patriot/California Jockey Merger will be consummated on the terms contained in
the Patriot/California Jockey/Bay Meadows Agreement.
In preparing our opinion, we have also assumed and relied on the accuracy
and completeness of all information supplied or otherwise made available to us
or publicly available or discussed with or reviewed by or for us, and we have
not assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of any of the assets or
liabilities of the Company, the Purchaser, California Jockey, Bay Meadows, the
Crow Family Assets or of any of the companies which are the subject of any of
the Contemplated Transactions, or been furnished with any such evaluation or
appraisal. In addition, we have not conducted any physical inspection of the
properties or facilities of the Company, the Purchaser, California Jockey, Bay
Meadows, the Crow Family Assets or of any of the companies which are the
subject of any of the Contemplated Transactions. With respect to the financial
forecast information furnished to or discussed with us by the Company or the
Purchaser, we have assumed that they have been reasonably prepared and reflect
the best currently available estimates and judgment of the Company's or the
Purchaser's management as to the expected future financial performance of the
Company or the Purchaser, as the case may be. With respect to the financial
forecast information furnished to or discussed with us by certain
representatives of the Crow Family Members, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates
and judgment of such representatives as to the expected future financial
performance of the Crow Family Assets. We have further assumed with your
consent that the Merger will qualify as a tax-free reorganization for U.S.
federal income tax purposes, the Purchaser will qualify to be treated as a
real estate investment trust within the meaning of the Internal Revenue Code
of 1986, as amended, before and after giving effect to the Merger, and the
pairing of the Paired Shares will be permitted pursuant to Section 136(c) of
the Deficit Reduction Act of 1984, before and after giving effect to the
Merger.
As you know, it has been publicly reported that the Purchaser is exploring a
possible business combination or other transaction involving Carnival Hotels &
Casinos ("Carnival"). In that regard, the financial forecast information
furnished to us by the Purchaser does not include financial forecasts with
respect to Carnival, and accordingly, with your consent we have not reviewed
or considered any such transaction in arriving at our opinion.
J-3
<PAGE>
LOGO
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated as of the date hereof. We have assumed that
in the course of obtaining the necessary regulatory or other consents and
approvals (contractual or otherwise) for the Patriot/California Jockey Merger
and the Merger, no restrictions will be imposed that will have a material
adverse effect on the contemplated benefits of the Patriot/California Jockey
Merger or the Merger.
In connection with the preparation of this opinion, we have not been
authorized by the Company or the Special Committee of the Board of Directors
(the "Special Committee") to solicit, nor have we solicited, third-party
indications of interest for the acquisition of all or any part of the Company.
We are acting as financial advisor to the Special Committee in connection
with the Merger and will receive a fee from the Company for our services, a
significant portion of which is contingent upon the delivery of this opinion
and the consummation of the Merger. In addition, the Company has agreed to
indemnify us for certain liabilities arising out of our engagement. We are
currently providing and may in the future provide financial advisory and
financing services to the Purchaser, including certain financing services the
proceeds of which may be used in connection with the cash portion of the
Consideration. In addition, in the ordinary course of our business, we may
actively trade the Company Shares and other securities of the Company, the
stock and other securities of the Purchaser, as well as the Paired Shares and
other securities of California Jockey and Bay Meadows, for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is for the use and benefit of the Special Committee. Our
opinion does not address the merits of the underlying decision by the Company
to engage in the Merger and does not constitute a recommendation to any
shareholder as to how such shareholder should vote on the proposed Merger or
any transaction related thereto or as to whether any shareholder should elect
to receive cash or the Paired Shares.
We are not expressing any opinion as to the prices at which the Paired
Shares will trade following the announcement or consummation of the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Consideration to be received by the holders of the
Company Shares (other than the Crow Family Members) in the Merger is fair to
such holders from a financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner
& Smith Incorporated
J-4
<PAGE>
ANNEX K
DELAWARE STATUTORY APPRAISAL RIGHTS
(S)262 APPRAISAL RIGHTS. --(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to (S)228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S)251 (other than a merger effected pursuant to
(S)251(g) of this title), (S)252, (S)254, (S)257, (S)258, (S)263 or (S)264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S)251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S)251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares of fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S)253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to (S)228 or
(S)253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
K-2
<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw his demand
for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which
demands for appraisal have been received and the aggregate number of holders
of such shares. Such written statement shall be mailed to the stockholder
within 10 days after his written request for such a statement is received by
the surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of
K-3
<PAGE>
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 120, L.
'97, eff. 7-1-97.)
K-4
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Patriot REIT Charter and the Patriot Operating Company Charter
each include a provision which eliminates any personal liability for a
director to Patriot REIT or Patriot Operating Company, as the case may be, and
to the stockholders, for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to Patriot REIT or Patriot Operating Company, as the case may be, or
to the stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii) in
connection with certain unlawful dividend payments or stock redemptions or
repurchases or (iv) for any transaction from which such director derived an
improper personal benefit. In addition, the Patriot REIT Charter and the
Patriot Operating Company Charter each provide that if the DGCL is amended to
authorize the further elimination or limitation of the personal liability of
directors, then the liability of a director of Patriot REIT or Patriot
Operating Company shall be eliminated or limited to the fullest extent
permitted by the DGCL, as so amended.
Article VII of each of the Patriot REIT Bylaws and the Patriot Operating
Company Bylaws provide for indemnification by Patriot REIT or Patriot
Operating Company, as the case may be, of their respective officers, directors
and the officers and directors of their respective subsidiaries to the fullest
extent permitted by Section 145 of the DGCL, as amended from time to time, and
Patriot REIT and Patriot Operating Company may, by action of their respective
Boards of Directors, indemnify all other persons Patriot REIT or Patriot
Operating Company may indemnify under the DGCL. In addition, Patriot REIT and
Patriot Operating Company have agreed, following the Merger, to indemnify and
hold harmless, to the full extent permitted by applicable law, those directors
and executive officers that were directors or officers of Wyndham. Patriot
REIT and Patriot Operating Company also have agreed, subject to certain
conditions, to maintain in effect certain director and officer liability
insurance policies covering such directors and officers. See "The Merger and
Subscription--Interests of Certain Officers, Directors and Stockholders of
Wyndham--Indemnification and Insurance Arrangements" and "The Merger
Agreement--Indemnification."
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation,
attached as Annex A to the Joint Proxy Statement/Prospectus included
in Part I of this Registration Statement and incorporated herein by
reference. Patriot REIT and Wyndham hereby undertake to furnish
supplementally to the Commission upon request a copy of any omitted
schedule or exhibit to the Merger Agreement.
+2.2(1) Amendment No. 1 to Agreement and Plan of Merger, dated as of November
3, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
attached as part of Annex A to the Joint Proxy Statement/Prospectus
included in Part I of this Registration Statement and incorporated
herein by reference.
*2.2(2) Amendment No. 2 to Agreement and Plan of Merger, dated as of December
9, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
attached as Annex S-A to the Joint Proxy Statement/Prospectus
Supplement included in Part I of this Registration Statement and
incorporated herein by reference.
+2.3 Subscription Agreement dated November 3, 1997 by and between Wyndham
Hotel Corporation and Patriot American Hospitality Operating Company.
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.1 to Patriot
REIT's and Patriot Operating Company's Registration Statement on Form
S-3 (No. 333-29671).
3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.,
incorporated by reference to Exhibit 3.2 to Patriot REIT's and Patriot
Operating Company's Registration Statement on Form S-3 (No. 333-
29671).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
3.3 Amended and Restated Certificate of Incorporation of Patriot
American Hospitality Operating Company, incorporated by reference to
Exhibit 3.3 to Patriot REIT's and Patriot Operating Company's
Registration Statement on Form S-3 (No. 333-29671).
3.4 Amended and Restated Bylaws of Patriot American Hospitality
Operating Company, incorporated by reference to Exhibit 3.4 to
Patriot REIT's and Patriot Operating Company's Registration
Statement on Form S-3 (No. 333-29671).
3.5 Amended and Restated Certificate of Incorporation of Wyndham Hotel
Corporation, incorporated by reference to Exhibit 3.1 in Amendment
No. 1 to Wyndham's Registration Statement on Form S-1 (No. 333-
2214).
3.6 Amended and Restated Bylaws of Wyndham Hotel Corporation,
incorporated by reference to Exhibit 3.2 in Amendment No. 1 to
Wyndham's Registration Statement on Form S-1 (No. 333-2214).
+3.7 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc. attached as Annex F to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
+3.8 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality Operating Company attached as Annex G to the
Joint Proxy Statement/Prospectus, included in Part I of this
Registration Statement and incorporated herein by reference.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (formerly named Bay Meadows Realty
Enterprises, Inc.), as amended, incorporated by reference to Exhibit
4.3 to Cal Jockey's and Bay Meadows' Registration Statement on Form
S-2, and to Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual
Report on Form 10-K for the year ended December 31, 1987 (Nos.
001-09319, 001-09320).
+4.2 Amendment No. 2 to the Pairing Agreement.
+4.3 Form of Amendment No. 3 to the Pairing Agreement attached as Annex E
to the Joint Proxy Statement/Prospectus, included in Part I of this
Registration Statement and incorporated herein by reference.
+4.4 Specimen Certificates for shares of Common Stock, par value $.01 per
share, of Patriot REIT and shares of Common Stock, par value $.01
per share, of Wyndham International.
+5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Patriot REIT and Patriot Operating
Company.
+8.1 Opinion of Goodwin, Procter & Hoar llp regarding tax consequences of
the Merger.
+8.2 Opinion of Goodwin, Procter & Hoar llp regarding (i) Patriot REIT's
qualification as a REIT for periods prior to the Merger and (ii)
Patriot REIT's ability to qualify as a REIT following the Merger.
10.1(1) Second Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.1(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
+10.1(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P.
+10.1(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.
+10.1(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+10.2(1) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P.
+10.2(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P.
+10.2(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P.
10.3 Credit Facilities Commitment Letter, dated as of May 23, 1997,
between Patriot American Hospitality, Inc., PaineWebber Real Estate
Securities, Inc. and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.34 to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
+10.4 Stock Purchase Agreement, dated as of April 14, 1997, between Patriot
American Hospitality, Inc. and CF Securities, L.P. attached as Annex
D to the Joint Proxy Statement/Prospectus, included in Part I of this
Registration Statement and incorporated herein by reference.
+10.5 Form of Registration Rights Agreement by and between Patriot American
Hospitality, Inc., Patriot American Hospitality Operating Company,
and each of the parties signatory thereto.
+10.6 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality, Inc. and Wyndham Hotel Corporation, attached as Annex B
to the Joint Proxy Statement/Prospectus included in Part I of this
Registration Statement and incorporated herein by reference.
+10.7 Ratification Agreement, dated July 24, 1997, between Patriot American
Hospitality Operating Company, Patriot American Hospitality, Inc.,
Wyndham Hotel Corporation and CF Securities, L.P., attached as Annex
C to the Joint Proxy Statement/Prospectus included in Part I of this
Registration Statement and incorporated herein by reference.
+10.8 Form of Cooperation Agreement between Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company.
+10.9 Standstill Agreement, dated as of April 14, 1997, by and among
Patriot American Hospitality, Inc. and CF Securities, L.P.
+10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P.
+10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum.
+10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III.
+10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley.
+10.14 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker.
+10.15 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr.
+10.16 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond.
+10.17 Proxy Agreement, dated as of April 14, 1997, among Patriot American
Hospitality, Inc., CF Securities, L.P., James D. Carreker, Leslie V.
Bentley, Anne L. Raymond, Stanley M. Koonce, Jr. and Wyndham Hotel
Corporation.
+10.18 Revocable Proxy, dated as of April 14, 1997, by Harlan R. Crow.
+10.19 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker.
+10.21 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond.
+10.22 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley.
+10.23 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr.
10.24 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and
among the Crow Family Entities and Patriot American Hospitality
Partnership, L.P., incorporated by reference to Exhibit 10.32 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-4 (No. 333-
28085).
+10.25 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Bel Age
Associates, L.P.
+10.26 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Franklin Plaza
Associates Limited Partnership and Franklin Plaza Associates.
+10.27 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and WHC-LG Hotel
Associates, L.P.
+10.28 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and CLC Limited
Partnership.
+10.29 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and MTD Associates.
+10.30 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Itasca Hotel
Company.
+10.31 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Novi Garden Hotel
Associates.
+10.32 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel and Convention
Center Partners I, Ltd., Hotel and Convention Center Partners II, Ltd.,
Hotel and Convention Center Partners III, Ltd., Hotel and Convention
Center Partners IV, Ltd., Hotel and Convention Center Partners V, Ltd.,
Hotel and Convention Center Partners VI, Ltd., Hotel and Convention
Center Partners VII, Ltd., Hotel and Convention Center Partners VIII,
Ltd., Hotel and Convention Center Partners IX, Ltd., Hotel and
Convention Center Partners X, Ltd. and Hotel and Convention Center
Partners XI, Ltd.
+10.33 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Pleasanton
Associates, Ltd.
+10.34 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Convention Center
Boulevard Hotel, Limited.
+10.35 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Wood Dale Garden
Hotel Partnership.
+10.36 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein.
+10.37 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein.
+10.38 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+10.39 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and WHG Resorts & Casinos Inc.
+10.40 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality, Inc. and CHC International, Inc.
+10.41 Voting Agreement, dated as of September 30, 1997, by and among Patriot
American Hospitality Operating Company, Carnival Corporation, Sherwood
M. Weiser and Donald E. Lefton.
+10.42 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of CHC
International, Inc.
+10.43 Form of Capital Contribution and Loan Commitment Agreement by and
between Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company.
10.44 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company, incorporated by
reference to Exhibit 2.1 to Patriot REIT's and Patriot Operating
Company's Current Report on Form 8-K dated December 2, 1997 (Nos. 001-
09319, 001-09320).
10.45 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, the shareholders of Interstate Hotels Company named
on the signature pages thereto, and Interstate Hotels Company,
incorporated by reference to Exhibit 10.1 to Patriot REIT's and Patriot
Operating Company's Current Report on Form 8-K dated December 2, 1997
(Nos. 001-09319, 001-09320).
*12.1 Historical Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Patriot American Hospitality, Inc.
*21.2 Subsidiaries of Patriot American Hospitality Operating Company.
*23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
*23.3 Consent of Ernst & Young LLP (Dallas, Texas).
*23.4 Consent of Ernst & Young LLP (Seattle, Washington).
*23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
*23.6 Consent of Ernst & Young LLP (Miami, Florida).
*23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
*23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
*23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
*23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
*23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
*23.14 Consent of Coopers & Lybrand L.L.P. (Tampa, Florida).
*23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.16 Consent of Price Waterhouse LLP (Miami, Florida)
*23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
*23.18 Consent of Mayer Hoffman McCann L.C. (Kansas City, Missouri).
+23.19 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 8.1).
+24.1 Powers of Attorney (included in Part II of this Registration
Statement).
*99.1 Consent of PaineWebber Incorporated.
*99.2 Consent of Smith Barney Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*99.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+99.4 Form of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company Proxy.
+99.5 Form of Wyndham Hotel Corporation Proxy.
+99.6 Form of Cash Election.
+99.7 Director Nominee Consent of James D. Carreker.
+99.8 Director Nominee Consent of Harlan R. Crow.
+99.9 Director Nominee Consent of Susan T. Groenteman.
+99.10 Director Nominee Consent of James C. Leslie.
+99.11 Director Nominee Consent of Philip J. Ward.
*99.12 Form of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company Proxy.
*99.13 Form of Wyndham Hotel Corporation Proxy.
</TABLE>
- --------
+ Previously filed
* Filed herewith
(B) FINANCIAL STATEMENT SCHEDULES
None.
(C) ITEM 4(B) INFORMATION
The Opinions of PaineWebber Incorporated, Smith Barney Inc. and Merrill
Lynch, Pierce, Fenner & Smith Incorporated are included as Annex H, Annex I
and Annex J, respectively, to the Joint Proxy Statement/Prospectus, and an
additional opinion of Smith Barney Inc. is included as Annex S-B to the Joint
Proxy Statement/Prospectus Supplement included in this Registration Statement,
and an additional opinion of PaineWebber Incorporated is included as Annex S-C
to the Joint Proxy Statement/Prospectus Supplement included in this
Registration Statement.
ITEM 22. UNDERTAKINGS.
(a) The Undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) herein do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed with
or furnished to the Commission by the registrant pursuant to Section 13 or
Section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the registration statement;
II-6
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(c) The registrant hereby undertakes as follows: that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(f) The registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4,
10(b), 11, or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The registrant hereby undertakes to supply by means of a post-effective
amendment all information concerning a transaction, and the company being
acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH OF THE
REGISTRANTS HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT TO THE REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS, DECEMBER 8, 1997.
Patriot American Hospitality, Inc. Patriot American Hospitality
Operating Company
By: /s/ Paul A. Nussbaum By: /s/ Paul A. Nussbaum
--------------------------------- ---------------------------------
PAUL A. NUSSBAUM, PAUL A. NUSSBAUM,
CHAIRMAN OF THE BOARD, CHIEF CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER AND PRESIDENT EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul A. Nussbaum Chairman of the December 8, 1997
- ------------------------------------- Board of Directors,
PAUL A. NUSSBAUM Chief Executive
Officer and
President, Patriot
American
Hospitality, Inc.
(Principal
Executive Officer)
* Chief Financial December 8, 1997
- ------------------------------------- Officer and
REX E. STEWART Treasurer, Patriot
American
Hospitality, Inc.
(Principal
Financial Officer
and Principal
Accounting Officer)
* Office of the December 8, 1997
- ------------------------------------- Chairman and
WILLIAM W. EVANS III Director, Patriot
American
Hospitality, Inc.
* Director, Patriot December 8, 1997
- ------------------------------------- American
JOHN H. DANIELS Hospitality, Inc.
* Director, Patriot December 8, 1997
- ------------------------------------- American
JOHN C. DETERDING Hospitality, Inc.
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, Patriot December 8, 1997
- ------------------------------------- American
GREGORY R. DILLON Hospitality, Inc.
Director, Patriot December , 1997
- ------------------------------------- American
THOMAS S. FOLEY Hospitality, Inc.
* Director, Patriot December 8, 1997
- ------------------------------------- American
ARCH K. JACOBSON Hospitality, Inc.
</TABLE>
*By: /s/ Paul A. Nussbaum
---------------------------
PAUL A. NUSSBAUM,
ATTORNEY-IN-FACT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Paul A. Nussbaum Chairman of the December 8, 1997
- ------------------------------------- Board of Directors
PAUL A. NUSSBAUM and Chief Executive
Officer, Patriot
American
Hospitality
Operating Company
(Principal
Executive Officer)
* President, Chief December 8, 1997
- ------------------------------------- Operating Officer
KARIM ALIBHAI and Director,
Patriot American
Hospitality
Operating Company
* Chief Financial December 8, 1997
- ------------------------------------- Officer and
REX E. STEWART Treasurer, Patriot
American
Hospitality
Operating Company
(Principal
Financial Officer
and Principal
Accounting Officer)
</TABLE>
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
* Director, Patriot December 8, 1997
- ------------------------------------- American
ARCH K. JACOBSON Hospitality
Operating Company
* Director, Patriot December 8, 1997
- ------------------------------------- American
LEONARD BOXER Hospitality
Operating Company
* Director, Patriot December 8, 1997
- ------------------------------------- American
RUSS LYON, JR. Hospitality
Operating Company
* Director, Patriot December 8, 1997
- ------------------------------------- American
BURTON C. EINSPRUCH Hospitality
Operating Company
* Director, Patriot December 8, 1997
- ------------------------------------- American
SHERWOOD M. WEISER Hospitality
Operating Company
</TABLE>
*By: /s/ Paul A. Nussbaum
---------------------------
PAUL A. NUSSBAUM,
ATTORNEY-IN-FACT
II-10
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+2.1 Agreement and Plan of Merger, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and Wyndham Hotel Corporation,
attached as Annex A to the Joint Proxy Statement/Prospectus included
in Part I of this Registration Statement and incorporated herein by
reference. Patriot REIT and Wyndham hereby undertake to furnish
supplementally to the Commission upon request a copy of any omitted
schedule or exhibit to the Merger Agreement.
+2.2(1) Amendment No. 1 to Agreement and Plan of Merger, dated as of November
3, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
attached as part of Annex A to the Joint Proxy Statement/Prospectus
included in Part I of this Registration Statement and incorporated
herein by reference.
*2.2(2) Amendment No. 2 to Agreement and Plan of Merger, dated as of December
9, 1997, by and among Patriot American Hospitality, Inc., Patriot
American Hospitality Operating Company and Wyndham Hotel Corporation,
attached as Annex S-A to the Joint Proxy Statement/Prospectus
Supplement included in Part I of this Registration Statement and
incorporated herein by reference.
+2.3 Subscription Agreement dated November 3, 1997 by and between Wyndham
Hotel Corporation and Patriot American Hospitality Operating Company.
3.1 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality, Inc., incorporated by reference to Exhibit 3.1 to Patriot
REIT's and Patriot Operating Company's Registration Statement on Form
S-3 (No. 333-29671).
3.2 Amended and Restated Bylaws of Patriot American Hospitality, Inc.,
incorporated by reference to Exhibit 3.2 to Patriot REIT's and Patriot
Operating Company's Registration Statement on Form S-3 (No. 333-
29671).
3.3 Amended and Restated Certificate of Incorporation of Patriot American
Hospitality Operating Company, incorporated by reference to Exhibit
3.3 to Patriot REIT's and Patriot Operating Company's Registration
Statement on Form S-3 (No. 333-29671).
3.4 Amended and Restated Bylaws of Patriot American Hospitality Operating
Company, incorporated by reference to Exhibit 3.4 to Patriot REIT's
and Patriot Operating Company's Registration Statement on Form S-3
(No. 333-29671).
3.5 Amended and Restated Certificate of Incorporation of Wyndham Hotel
Corporation, incorporated by reference to Exhibit 3.1 in Amendment No.
1 to Wyndham's Registration Statement on Form S-1 (No. 333-2214).
3.6 Amended and Restated Bylaws of Wyndham Hotel Corporation, incorporated
by reference to Exhibit 3.2 in Amendment No. 1 to Wyndham's
Registration Statement on Form S-1 (No. 333-2214).
+3.7 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality, Inc. attached as Annex F to the Joint Proxy
Statement/Prospectus, included in Part I of this Registration
Statement and incorporated herein by reference.
+3.8 Form of Amended and Restated Certificate of Incorporation of Patriot
American Hospitality Operating Company attached as Annex G to the
Joint Proxy Statement/Prospectus, included in Part I of this
Registration Statement and incorporated herein by reference.
4.1 Agreement (the "Pairing Agreement"), dated February 15, 1983 and as
amended February 18, 1988, between Bay Meadows Operating Company and
California Jockey Club (formerly named Bay Meadows Realty Enterprises,
Inc.), as amended, incorporated by reference to Exhibit 4.3 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-2, and to
Exhibit 4.2 to Cal Jockey's and Bay Meadows' Annual Report on Form 10-
K for the year ended December 31, 1987 (Nos. 001-09319, 001-09320).
+4.2 Amendment No. 2 to the Pairing Agreement.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+4.3 Form of Amendment No. 3 to the Pairing Agreement attached as Annex E
to the Joint Proxy Statement/Prospectus, included in Part I of this
Registration Statement and incorporated herein by reference.
+4.4 Specimen Certificates for shares of Common Stock, par value $.01 per
share, of Patriot REIT and shares of Common Stock, par value $.01
per share, of Wyndham International.
+5.1 Opinion of Goodwin, Procter & Hoar llp as to the legality of the
securities being offered by Patriot REIT and Patriot Operating
Company.
+8.1 Opinion of Goodwin, Procter & Hoar llp regarding tax consequences of
the Merger.
+8.2 Opinion of Goodwin, Procter & Hoar llp regarding (i) Patriot REIT's
qualification as a REIT for periods prior to the Merger and (ii)
Patriot REIT's ability to qualify as a REIT following the Merger.
10.1(1) Second Amended and Restated Agreement of Limited Partnership of
Patriot American Hospitality Partnership, L.P., incorporated by
reference to Exhibit 10.1(1) to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
10.1(2) First Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P., incorporated by reference to Exhibit 10.1(2) to Cal Jockey's
and Bay Meadows' Registration Statement on Form S-4 (No. 333-28085).
+10.1(3) Second Amendment to the Second Amended and Restated Agreement of
Limited Partnership of Patriot American Hospitality Partnership,
L.P.
+10.1(4) Third Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.
+10.1(5) Fourth Amendment to Second Amended and Restated Agreement of Limited
Partnership of Patriot American Hospitality Partnership, L.P.
+10.2(1) Agreement of Limited Partnership of Patriot American Hospitality
Operating Partnership, L.P.
+10.2(2) First Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P.
+10.2(3) Second Amendment to Agreement of Limited Partnership of Patriot
American Hospitality Operating Partnership, L.P.
10.3 Credit Facilities Commitment Letter, dated as of May 23, 1997,
between Patriot American Hospitality, Inc., PaineWebber Real Estate
Securities, Inc. and The Chase Manhattan Bank, incorporated by
reference to Exhibit 10.34 to Cal Jockey's and Bay Meadows'
Registration Statement on Form S-4 (No. 333-28085).
+10.4 Stock Purchase Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and CF Securities, L.P. attached
as Annex D to the Joint Proxy Statement/Prospectus, included in Part
I of this Registration Statement and incorporated herein by
reference.
+10.5 Form of Registration Rights Agreement by and between Patriot
American Hospitality, Inc., Patriot American Hospitality Operating
Company, and each of the parties signatory thereto.
+10.6 Ratification Agreement, dated July 24, 1997, between Patriot
American Hospitality, Inc. and Wyndham Hotel Corporation, attached
as Annex B to the Joint Proxy Statement/Prospectus included in Part
I of this Registration Statement and incorporated herein by
reference.
+10.7 Ratification Agreement, dated July 24, 1997, between Patriot
American Hospitality Operating Company, Patriot American
Hospitality, Inc., Wyndham Hotel Corporation and CF Securities,
L.P., attached as Annex C to the Joint Proxy Statement/Prospectus
included in Part I of this Registration Statement and incorporated
herein by reference.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+10.8 Form of Cooperation Agreement between Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company.
+10.9 Standstill Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P.
+10.10 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and CF Securities, L.P.
+10.11 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Paul A. Nussbaum.
+10.12 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and William W. Evans III.
+10.13 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Leslie V. Bentley.
+10.14 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and James D. Carreker.
+10.15 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr.
+10.16 Voting Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality, Inc. and Anne L. Raymond.
+10.17 Proxy Agreement, dated as of April 14, 1997, among Patriot American
Hospitality, Inc., CF Securities, L.P., James D. Carreker, Leslie V.
Bentley, Anne L. Raymond, Stanley M. Koonce, Jr. and Wyndham Hotel
Corporation.
+10.18 Revocable Proxy, dated as of April 14, 1997, by Harlan R. Crow.
+10.19 Letter Agreement, dated as of April 14, 1997, by and between Patriot
American Hospitality, Inc. and Wynopt Investment Partnership, L.P.
+10.20 Executive Employment Agreement, dated as of April 14, 1997, between
Patriot American Hospitality, Inc. and James D. Carreker.
+10.21 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Anne L. Raymond.
+10.22 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Leslie V. Bentley.
+10.23 Executive Employment Agreement, dated April 14, 1997, between Patriot
American Hospitality, Inc. and Stanley M. Koonce, Jr.
10.24 Omnibus Purchase and Sale Agreement, dated as of April 14, 1997, by and
among the Crow Family Entities and Patriot American Hospitality
Partnership, L.P., incorporated by reference to Exhibit 10.32 to Cal
Jockey's and Bay Meadows' Registration Statement on Form S-4 (No. 333-
28085).
+10.25 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Bel Age
Associates, L.P.
+10.26 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Franklin Plaza
Associates Limited Partnership and Franklin Plaza Associates.
+10.27 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and WHC-LG Hotel
Associates, L.P.
+10.28 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and CLC Limited
Partnership.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
+10.29 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and MTD Associates.
+10.30 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Itasca Hotel
Company.
+10.31 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Novi Garden Hotel
Associates.
+10.32 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel and Convention
Center Partners I, Ltd., Hotel and Convention Center Partners II, Ltd.,
Hotel and Convention Center Partners III, Ltd., Hotel and Convention
Center Partners IV, Ltd., Hotel and Convention Center Partners V, Ltd.,
Hotel and Convention Center Partners VI, Ltd., Hotel and Convention
Center Partners VII, Ltd., Hotel and Convention Center Partners VIII,
Ltd., Hotel and Convention Center Partners IX, Ltd., Hotel and
Convention Center Partners X, Ltd. and Hotel and Convention Center
Partners XI, Ltd.
+10.33 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Hotel Pleasanton
Associates, Ltd.
+10.34 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Convention Center
Boulevard Hotel, Limited.
+10.35 Purchase and Sale Agreement, dated as of April 14, 1997, between
Patriot American Hospitality Partnership, L.P. and Wood Dale Garden
Hotel Partnership.
+10.36 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein.
+10.37 Option Agreement, dated as of April 14, 1997, by and among Patriot
American Hospitality Partnership, L.P. and the Grantors Named Therein.
+10.38 Harlan R. Crow Letter Agreement, dated as of April 14, 1997, re:
Management Agreement between Anatole Hotel Investors, L.P. and Wyndham
Hotel Company, Ltd.
+10.39 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality Operating Company Acquisition Subsidiary, Patriot American
Hospitality, Inc. and WHG Resorts & Casinos Inc.
+10.40 Agreement and Plan of Merger, dated as of September 30, 1997, by and
among Patriot American Hospitality Operating Company, Patriot American
Hospitality, Inc. and CHC International, Inc.
+10.41 Voting Agreement, dated as of September 30, 1997, by and among Patriot
American Hospitality Operating Company, Carnival Corporation, Sherwood
M. Weiser and Donald E. Lefton.
+10.42 Hospitality Advisory, Asset Management and Support Services Agreement,
dated as of September 30, 1997, by and among Patriot American
Hospitality Operating Partnership, L.P. and certain subsidiaries of CHC
International, Inc.
+10.43 Form of Capital Contribution and Loan Commitment Agreement by and
between Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company.
10.44 Agreement and Plan of Merger, dated as of December 2, 1997, by and
among Interstate Hotels Company, Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company, incorporated by
reference to Exhibit 2.1 to Patriot REIT's and Patriot Operating
Company's Current Report on Form 8-K dated December 2, 1997 (Nos. 001-
09319, 001-09320).
10.45 Shareholders Agreement, dated as of December 2, 1997, by and among
Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company, the shareholders of Interstate Hotels Company named
on the signature pages thereto, and Interstate Hotels Company,
incorporated by reference to Exhibit 10.1 to Patriot REIT's and Patriot
Operating Company's Current Report on Form 8-K dated December 2, 1997
(Nos. 001-09319, 001-09320).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
------ -----------
<C> <S>
*12.1 Historical Ratio of Earnings to Fixed Charges.
*21.1 Subsidiaries of Patriot American Hospitality, Inc.
*21.2 Subsidiaries of Patriot American Hospitality Operating Company.
*23.1 Consent of Deloitte & Touche LLP (San Francisco, California).
*23.2 Consent of Deloitte & Touche LLP (Houston, Texas).
*23.3 Consent of Ernst & Young LLP (Dallas, Texas).
*23.4 Consent of Ernst & Young LLP (Seattle, Washington).
*23.5 Consent of Ernst & Young LLP (Phoenix, Arizona).
*23.6 Consent of Ernst & Young LLP (Miami, Florida).
*23.7 Consent of Ernst & Young LLP (Kansas City, Missouri).
*23.8 Consent of Ernst & Young LLP (San Juan, Puerto Rico).
*23.9 Consent of Coopers & Lybrand L.L.P. (Fort Lauderdale, Florida).
*23.10 Consent of Coopers & Lybrand L.L.P. (Pittsburgh, Pennsylvania).
*23.11 Consent of Coopers & Lybrand L.L.P. (Dallas, Texas).
*23.12 Consent of Coopers & Lybrand L.L.P. (Newport Beach, California).
*23.13 Consent of Coopers & Lybrand L.L.P. (Phoenix, Arizona).
*23.14 Consent of Coopers & Lybrand L.L.P. (Tampa, Florida).
*23.15 Consent of Pannell Kerr Forster PC (Alexandria, Virginia).
*23.16 Consent of Price Waterhouse LLP (Miami, Florida)
*23.17 Consent of Arthur Andersen LLP (Dallas, Texas).
*23.18 Consent of Mayer Hoffman McCann L.C. (Kansas City, Missouri).
+23.19 Consent of Goodwin, Procter & Hoar LLP (included in Exhibit 8.1).
+24.1 Powers of Attorney (included in Part II of this Registration
Statement).
*99.1 Consent of PaineWebber Incorporated.
*99.2 Consent of Smith Barney Inc.
*99.3 Consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated.
+99.4 Form of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company Proxy.
+99.5 Form of Wyndham Hotel Corporation Proxy.
+99.6 Form of Cash Election
+99.7 Director Nominee Consent of James D. Carreker.
+99.8 Director Nominee Consent of Harlan R. Crow.
+99.9 Director Nominee Consent of Susan T. Groenteman.
+99.10 Director Nominee Consent of James C. Leslie.
+99.11 Director Nominee Consent of Philip J. Ward.
*99.12 Form of Patriot American Hospitality, Inc. and Patriot American
Hospitality Operating Company Proxy.
*99.13 Form of Wyndham Hotel Corporation Proxy.
</TABLE>
- --------
+ Previously filed
* Filed herewith
<PAGE>
EXHIBIT 12.1
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
PATRIOT AMERICAN HOSPITALITY, INC. AND
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
(in thousands)
<TABLE>
<CAPTION>
9 Months Year Inception
Ended Ended Through
09/30/97 12/31/96 12/31/95
-------- -------- --------
<S> <C> <C> <C>
Earnings:
Income before minority interest $ 1,386 $ 44,813 $ 7,064
Add back fixed charges 32,568 7,471 89
--------- --------- ---------
$ 33,954 $ 52,284 $ 7,153
========= ========= =========
Fixed Charges:
Interest expense, including
amortization of DLC $ 31,261 $ 7,380 $ 89
Capitalized interest 1,307 91 --
--------- --------- ---------
$ 32,568 $ 7,471 $ 89
========= ========= =========
Ratio: 1.04 7.00 80.37
========= ========= =========
</TABLE>
<PAGE>
EXHIBIT 21.1
Patriot American Hospitality, Inc.
Subsidiaries
Patriot American Hospitality Partnership, L.P., a Virginia limited partnership
PAH GP, Inc., a Delaware corporation
PAH LP, Inc., a Delaware corporation
1500 Canal Street Investors II, L.P., a Delaware limited partnership
Bourbon Orleans Investors II, L.P., a Delaware limited partnership
PAH Ravinia, Inc., a Virginia corporation
PAH Acquisition Corporation, a Delaware corporation
PA Hunt Valley Investors, L.P., a Virginia limited partnership
PA Troy Hospitality Investors L.P., a Delaware limited partnership
PAH Windwatch, LLC, a Delaware limited liability company
PAH-DT Tallahassee Partners, L.P., a Delaware limited partnership
PAH-DT Chicago O'Hare Partners, L.P., a Delaware limited partnership
PAH-DT Miami Airport Partners, L.P., a Delaware limited partnership
PAH Allen Operating Corporation, a Delaware corporation
PAH-GP Allen Partners, L.P., a Delaware limited partnership
PAH-DT Allen Partners, L.P, a Delaware limited partnership
PAH-DT Tulsa Partners, L.P., a Delaware limited partnership
PAH Ventana Canyon, L.P., a Delaware limited partnership
PAH-DT Minneapolis Suites Partners, L.P., a Delaware limited partnership
PAH-DT Park Place Partners, L.P., a Delaware limited partnership
PAH Carefree, L.P., a Delaware limited partnership
CV Ranch L.P., a Delaware limited partnership
Telluride Resort and Spa, L.P., a Delaware limited partnership
Resorts Limited Partnership, a Delaware limited partnership
Resorts Limited Partnership II, a Delaware limited partnership
PAH-Westlake, L.L.C., a Delaware limited liability company
PAH-Akron, L.L.C., a Delaware limited liability company
PAH-Beachwood I, L.L.C., a Delaware limited liability company
PAH-Beachwood II, L.L.C., a Delaware limited liability company
Patriot Land Holding LLC, a Delaware limited liability company
Patriot Racetrack Land LLC, a Delaware limited liability company
Boulders Joint Venture , an Arizona general partnership
Glenview Hospitality, L.P., a Delaware limited partnership
Marina Hospitality, L.P., a Delaware limited partnership
YO Hotel Investors, L.P., a Delaware limited partnership
Toledo Hotel Investors, L.P., a Delaware limited partnership
Kansas City Hospitality, L.P., a Delaware limited partnership
Melbourne Hospitality, L.P., a Delaware limited partnership
PAH-GBM, LLC, a Delaware limited liability company
PAH-RH, LLC, a Delaware limited liability company
PAH-T, LLC, a Delaware limited liability company
PAH Deuce GP, LLC, a Delaware limited liability company
PAH-Grand Bay Miami, L.P., a Delaware limited partnership
PAH-Tampa, L.P., a Delaware limited partnership
PAH-River House, L.P., a Delaware limited partnership
Patriot Miami Note Holder, L.P., a Delaware limited partnership
<PAGE>
EXHIBIT 21.2
Patriot American Hospitality Operating Company
Subsidiaries
Patriot American Hospitality Operating Partnership, L.P., a Delaware limited
partnership
PAH Leasing, LLC, a Delaware limited liability company
Resorts Services, Inc., an Arizona corporation
BJV Realty, Inc., an Arizona corporation
Boulders Carefree Sewer Corporation, an Arizona corporation
Centralized Operations, Inc., an Arizona corporation
The Peaks Real Estate Services, Inc., an Arizona corporation
Patriot Holding LLC, a Delaware limited liability company
Bay Meadows Operating Company LLC, a Delaware limited liability company
Bay Meadows Catering Inc., a California corporation
Patriot Grand Heritage, LLC, a Delaware limited liability company
GH (Cayman) Limited, a Cayman Islands company
GH-Chicago, Inc., an Illinois corporation
GHV-Colorado, Inc., a Colorado corporation
GH-Detroit, Inc., a Michigan corporation
GHV-Galveston, Inc., a Texas corporation
GH-Greenville, Inc., a Tennessee corporation
GH-Providence, Inc., a Rhode Island corporation
GH-San Diego, Inc., a Delaware corporation
GH-Wichita, Inc., a Kansas corporation
Grand Heritage Hotels (Europe) Limited, a United Kingdom company
Grand Heritage Hotels, Inc., a Maryland corporation
Grand Management Services, Inc., a Florida corporation
Grand Heritage Real Estate Group LLC, a Maryland limited liability company
GH Trademarks, LLC, a Maryland limited liability company
Grand Heritage Leasing LLC, a Maryland limited liability company
GH-Atlanta, LLC, a Maryland limited liability company
P.H.G., LLC, a Maryland limited liability company
Burrllen Enterprises of Maryland, a Maryland general partnership
PAH Stanly Ranch LLC, a Delaware limited liability company
PAH Stanly Holding LLC, a Delaware limited liability company
PAH-Buttes, LLC, a Delaware limited liability company
GAH-II, L.P., a Delaware limited partnership
PAH GAH Holdings, LLC, a Delaware limited liability company
PAH GAH Holdings, L.P., a Delaware limited partnership
Patriot American Hospitality Operating Company Acquisition Subsidiary, a
Delaware corporation
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to the Registration Statement on Form S-4 of Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company, of our report dated
March 28, 1997 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to a proposed merger and certain disagreements
between the Companies), appearing in the Annual Report on Form 10-K of Bay
Meadows Operating Company and of California Jockey Club for the year ended
December 31, 1996 and to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Post-Effective Amendment No. 1 to the
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
December 5, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to Registration Statement Nos. 333-39875 and 333-39875-01 of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company of
our report dated September 30, 1997 (relating to the financial statements of
Partnerships of Acquired Hotels as of December 31, 1996 and 1995 and for each of
the two years in the period ended December 31, 1996) appearing in the report on
Form 8-K/A No. 1 dated September 30, 1997 of Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company and to the reference to us
under the heading "Experts" in the Joint Proxy Statement/Prospectus, which is
part of this Post-Effective Amendment No. 1 to the Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
December 5, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post-Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company, and Wyndham Hotel Corporation of our reports (a)
dated January 31, 1997 (except for Note 14, as to which the date is March 18,
1997) with respect to the Consolidated Financial Statements and financial
statement schedules of Patriot American Hospitality, Inc. included in its 1996
Annual Report on Form 10-K and included in the Joint Current Report on Form 8-K
of Patriot American Hospitality, Inc. and Patriot American Hospitality Operating
Company dated July 1, 1997; (b) dated February 16, 1996, with respect to the
Combined Financial Statements of the Initial Hotels (which is based in part on
the reports of Coopers & Lybrand L.L.P., independent accountants, as set forth
in their reports on Certain of the Initial Hotels and Troy Hotel Investors)
included in Patriot American Hospitality, Inc.'s 1996 Annual Report on Form 10-
K; (c) dated March 5, 1996, with respect to the Financial Statements of Buckhead
Hospitality Joint Venture included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated April 2, 1996, as amended; (d) dated March 1,
1996 (except for Note 7, as to which the date is April 2, 1996) with respect to
the Combined Financial Statements of Gateway Hotel Limited Partnership and
Wenatchee Hotel Limited Partnership included in the Current Report on Form 8-K
of Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (e)
dated February 28, 1996 (except for Note 5, as to which the date is April 2,
1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Plaza Park Suites Hotel included in the Current Report on Form 8-K
of Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (f)
dated February 26, 1996 (except for Note 5, as to which the date is April 2,
1996) with respect to the Statement of Direct Revenue and Direct Operating
Expenses of Roosevelt Hotel included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated April 2, 1996, as amended; (g) dated
April 10, 1996 with respect to the Statement of Direct Revenue and Direct
Operating Expenses of Marriott WindWatch Hotel for the year ended December 29,
1995 included in the Current Report on Form 8-K of Patriot American Hospitality,
Inc., dated December 5, 1996; (h) dated August 30, 1996 with respect to the
Financial Statements of Concord O'Hare Limited Partnership for the year ended
December 29, 1995 included in the Current Report on Form 8-K of Patriot American
Hospitality, Inc., dated December 5, 1996; (i) dated September 10, 1996 with
respect to the Statement of Direct Revenue and Direct Operating Expenses of the
Mayfair Suites Hotel for the year ended December 31, 1995 included in the
Current Report on Form 8-K of Patriot American Hospitality, Inc., dated December
5, 1996; and (j) dated January 23, 1997 (except for Note 8, as to which the date
is September 30, 1997) with respect to the Consolidated Financial Statements of
GAH-II, L.P. for the years ended December 31, 1996 and 1995, included in the
Joint Current Report on Form 8-K of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company dated September 30, 1997, as
amended, all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 5, 1997
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post-Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company, and Wyndham Hotel Corporation of our report dated
March 5, 1997 with respect to the Financial Statements of NorthCoast Hotels,
L.L.C. included in Patriot American Hospitality, Inc.'s 1996 Annual Report on
Form 10-K filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Seattle, Washington
December 5, 1997
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post-Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company, and Wyndham Hotel Corporation of our reports (a)
dated March 14, 1997 with respect to the Consolidated Financial Statements of
Resorts Limited Partnership included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated January 16, 1997, as amended; (b)
dated February 13, 1997, with respect to the Financial Statements of CV Ranch
Limited Partnership included in the Current Report on Form 8-K of Patriot
American Hospitality, Inc., dated January 16,1997, as amended; and (c) dated
February 12, 1997 with respect to the Financial Statements of Telluride Resort
and Spa Limited Partnership included in the Current Report on Form 8-K of
Patriot American Hospitality, Inc., dated January 16, 1997, as amended, all
filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
December 5, 1997
<PAGE>
EXHIBIT 23.6
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post-Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company, and Wyndham Hotel Corporation of our reports (a)
dated March 13, 1997 (except for the third paragraph of Note 7, as to which the
date is April 2, 1997) with respect to the Financial Statements of G.B.H. Joint
Venture (d/b/a Grand Bay Hotel) for the years ended December 31, 1995 and 1996;
(b) dated September 23, 1997 with respect to the Financial Statements of River
House Associates (d/b/a Sheraton Gateway Hotel) for the years ended December 31,
1995 and 1996; and (c) dated September 19, 1997 with respect to the Financial
Statements of W-L Tampa, Ltd. (the Sheraton Grand Hotel) for the years ended
December 31, 1995 and 1996; all of which are included in the Joint Current
Report on Form 8-K/A No. 1 of Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company, dated September 30, 1997, as amended,
all filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Miami, Florida
December 5, 1997
<PAGE>
EXHIBIT 23.7
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post-Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company, and Wyndham Hotel Corporation of our reports (a)
dated April 8, 1997 (except for Note 11, as to which the date is July 31, 1997)
with respect to the Consolidated Financial Statements of ClubHouse Hotels, Inc.
as of December 31, 1996 and 1995 and for each of the three years in the period
ended December 31, 1996; (b) dated April 25, 1997 (except for Note 8, as to
which the date is July 31, 1997) with respect to the Combined Financial
Statements of ClubHouse Acquisition Hotels as of December 31, 1996 and 1995 and
for the years then ended; and (c) dated September 9, 1997 with respect to the
Financial Statements of Valdosta C.I. Associates, L.P. as of December 31, 1994
and for the year then ended; all of which are included in the Current Report on
Form 8-K/A of Wyndham Hotel Corporation dated September 18, 1997, all filed with
the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
Kansas City, Missouri
December 5, 1997
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in Post Effective Amendment No. 1 to the Joint
Registration Statement on Form S-4 and the related Joint Proxy
Statement/Prospectus of Patriot American Hospitality, Inc., Patriot American
Hospitality Operating Company and Wyndham Hotel Corporation of our reports (a)
dated August 7, 1997 (except for Note 18, as to which the date is September 17,
1997) with respect to the Consolidated Financial Statements of WHG Resorts &
Casinos Inc. and related financial statement schedule; (b) dated August 7, 1997
with respect to the financial statements of Posadas de San Juan Associates and
related financial statement schedule; (c) dated August 11, 1997 with respect to
the financial statements of WKA El Con Associates; and (d) dated May 2, 1997
with respect to the financial statements of El Conquistador Partnership L.P.;
all of which are included in the Joint Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company,
dated December 10, 1997, all filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Juan, Puerto Rico
December 5, 1997
<PAGE>
EXHIBIT 23.9
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company (File No. 333-28085 and 333-28085-01) of
our report dated January 15, 1996, on our audit of the financial statements of
Certain of the Initial Hotels.
/s/ COOPERS & LYBRAND L.L.P.
Fort Lauderdale, Florida
December 8, 1997
<PAGE>
EXHIBIT 23.10
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company (File No. 333-28085 and 333-28085-01) of
our reports (i) dated February 12, 1997, except for Note 21, Note 22 and the
last paragraph of Note 2, as to which the date is December 1, 1997 of our audit
of the consolidated financial statements of Interstate Hotels Company, (ii)
dated January 17, 1996, on our audit of the financial statements of Troy Hotel
Investors and (iii) dated February 7, 1995, on our audit of the financial
statements of Troy Park Associates.
/s/ COOPERS & LYBRAND, L.L.P.
Pittsburgh, Pennsylvania
December 8, 1997
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4), and related Joint Proxy Statement/Prospectus
of Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company, (File No. 333-28085 and 333-28085-01) of
our reports (i) dated October 15, 1996, on our audit of the statement of Direct
Revenue and Direct Operating Expenses of the Holiday Inn Miami Airport; (ii)
dated February 19, 1997, on our audits of the consolidated financial statements
of Wyndham Hotel Corporation as of December 31, 1996 and 1995, and for the years
ended December 31, 1996, 1995 and 1994, (iii) dated May 12, 1997 on our audit of
the Combined Financial Statements of the Minneapolis Hotels as of and for the
year ended December 31, 1996, (iv) dated June 27, 1997 on our audit of the
Combined Statement of Direct Revenue and Direct Operating Expenses of the Met
Life Hotels for the year ended December 31, 1996, and (v) dated September 8,
1997 on our audit of the Combined Financial Statements of the Snavely Hotels as
of and for the year ended December 31, 1996.
/s/ COOPERS & LYBRAND L.L.P.
Dallas, Texas
December 8, 1997
<PAGE>
EXHIBIT 23.12
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company, (File No. 333-28085 and 333-28085-01) of
our report dated March 8, 1996, related to the financial statements of Newporter
Beach Hotel Investments L.L.C. as of December 31, 1995, and for the period from
March 10, 1995 through December 31, 1995.
/s/ COOPERS & LYBRAND L.L.P.
Newport Beach, California
December 8, 1997
<PAGE>
Exhibit 23.13
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4) and related Joint Proxy Statement/Prospectus
of Wyndham Hotel Corporation and Patriot American Hospitality, Inc. and Patriot
American Hospitality Operating Company (File No. 333-28085 and 333-28085-01) of
our report (i) dated March 7, 1997 except for note 12 as to which the date is
October 7, 1997 on our audit of the Financial Statements of SCP (Buttes), Inc.,
as of and for the year ended December 31, 1996.
/s/ Coopers & Lybrand, L.L.P.
Phoenix, Arizona
December 8, 1997
<PAGE>
Exhibit 23.14
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement (Form S-4) and related Joint Proxy Statement/
Prospectus of Wyndham Hotel Corporation and Patriot American Hospitality, Inc.
and Patriot American Hospitality Operating Company (File No. 333-28085 and
333-28085-01) of our report dated January 17, 1997, except for Note 7, as to
which the date is November 25, 1997, on our audit of the financial statements of
Royal Palace Hotel Associates.
/s/ COOPERS & LYBRAND L.L.P.
Tampa, Florida
December 8, 1997
<PAGE>
Exhibit 23.15
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and the
incorporation by reference in the Post-Effective Amendment No. 1 to the
Registration Statement/Prospectus of Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company of our report dated March 1, 1996
on the financial statements of Historic Hotel Partners of Birmingham, Limited
Partnership, our reports dated October 8, 1997 and February 28, 1997 on the
financial statements of Historic Hotel Partners of Chicago Limited Partnership,
and our reports dated October 8, 1997 and February 21, 1997 on the financial
statements of Historic Hotel Partners of Nashville Limited Partnership.
/s/ Pannell Kerr Forster PC
Alexandria, Virginia
December 5, 1997
<PAGE>
Exhibit 23.16
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Post-Effective Amendment No. 1 to the Registration
Statement on Form S-4 (File No. 333-39875 and 333-39875-01) of Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company of our
reports (a) dated October 3, 1997 relating to the financial statements of CHC
International Inc. Hospitality Division as of and for the years ended November
30, 1995 and 1996 which appears in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company;
and (b) dated February 13, 1997, except as to Note 4, which is as of March 18,
1997, relating to the financial statements of CHC Lease Partners for the year
ended December 31, 1996 and the period inception (October 2, 1995) through
December 31, 1995 which appears in the Current Report on Form 8-K of Patriot
American Hospitality, Inc. and Patriot American Hospitality Operating Company
dated July 1, 1997. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
Miami, Florida
December 5, 1997
<PAGE>
EXHIBIT 23.17
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 17, 1997, on the combined financial statements of the Crow
Family Hotel Partnerships (and to all references to our Firm) included in or
made part of the Post-Effective Amendment No. 1 to this Registration
Statement.
Dallas, Texas /s/ ARTHUR ANDERSEN LLP
December 5, 1997
<PAGE>
EXHIBIT 23.18
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the reference to our firm under the caption "Experts"
and to the incorporation by reference of our reports dated February 8, 1996,
except for Note (4) for which the date is February 15, 1996 (Albuquerque C.I.
Associates, L.P.); February 16, 1996 (C.I. Nashville, Inc.); February 8, 1996
(Wichita C.I. Associates III, L.P.); and February 19, 1996 (Topeka C.I.
Associates, L.P.) appearing in the Post-Effective Amendment No. 1 to the Joint
Proxy Statement/Prospectus of Wyndham Hotel Corporation, Patriot American
Hospitality, Inc. and Patriot American Hospitality Operating Company, filed with
the Securities and Exchange Commission on or about December 10, 1997.
/s/ Mayer Hoffman McCann L.C.
Kansas City, Missouri
December 5, 1997
<PAGE>
Exhibit 99.1
------------
We hereby consent to the inclusion of our opinion letter dated July 24,
1997 to the Boards of Directors of Patriot Hospitality, Inc. and Patriot
American Hospitality Operating Company as an Annex to the Proxy
Statement/Prospectus which forms a part of the Registration Statement on Form S-
4 relating to the proposed transactions among Patriot American Hospitality,
Inc., Patriot American Hospitality Operating Company and Wyndham Hotel
Corporation; and to the references to such opinion in such Proxy
Statement/Prospectus under the captions "Summary--Reasons for the Merger and the
Related Transactions; Recommendations of the Boards of Directors," "Summary--
Opinions of Financial Advisors," "The Merger and Subscription--Reasons for the
Merger and the Related Transactions; Recommendation of the Boards of Directors
of the Patriot Companies" and "The Merger and Subscription--Opinion of Financial
Advisor to the Patriot Companies." We also hereby consent to the inclusion of
our opinion letter dated December 2, 1997 to the Board of Directors of Wyndham
Hotel Corporation as an Annex to the Proxy Statement/Prospectus Supplement which
forms a part of Post-Effective Amendment No. 1 to the Registration Statement on
Form S-4 and to the references to such opinion in such Proxy
Statement/Prospectus Supplement under the captions "Recent Developments--Wyndham
Consent to Patriot/IHC Merger and Related Amendment to Wyndham Merger Agreement"
and "Recent Developments--Opinions of Financial Advisors--Opinion of PaineWebber
Concerning Patriot/IHC Merger." In giving such consent, we do not admit and we
disclaim that we come within the category of persons whose consent is required
under Section 7 of the Securities Act of 1933, as amended (the "Securities
Act"), or the rules and regulations issued by the Securities and Exchange
Commission thereunder, nor do we admit that we are experts with respect to any
part of Post-Effective Amendment No. 1 or the Registration Statement within the
meaning of the term "experts" as used in the Securities Act or the rules and
regulations promulgated thereunder.
PAINEWEBBER INCORPORATED
By: /s/ Terrence E. Fancher
---------------------------------
Terrence E. Fancher
New York, New York
December 10, 1997
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF SMITH BARNEY INC. APPEARS HERE]
The Board of Directors
Wyndham Hotel Corporation
1950 Stemmons Freeway, Suite 6001
Dallas, Texas 75207
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Wyndham Hotel Corporation ("Wyndham") as Annex I to the Joint Proxy
Statement/Prospectus of Wyndham and Patriot American Hospitality, Inc. and
Patriot American Hospitality Operating Company (collectively, "Patriot"), which
forms a part of Post-Effective Amendment No. 1 to the Registration Statement on
Form S-4 (the "Post-Effective Amendment"), relating to the proposed merger
transaction involving Wyndham and Patriot and references thereto in such Joint
Proxy Statement/Prospectus under the captions "SUMMARY--Opinions of Financial
Advisors-Wyndham" and "THE MERGER AND SUBSCRIPTION--Opinions of Wyndham's
Financial Advisors--Smith Barney." We also hereby consent to the inclusion of
our opinion letter to the Board of Directors of Wyndham as Annex S-B to the
Joint Proxy Statement/Prospectus Supplement that forms a part of the Post-
Effective Amendment and references thereto in such Supplement under the caption
"Recent Developments--Opinion of Smith Barney." In giving such consent, we do
not admit that we come within the category of persons whose consent is required
under, and we do not admit that we are "experts" for purposes of, the Securities
Act of 1933, as amended, and the rules and regulations promulgated thereunder.
By: /s/ SMITH BARNEY INC.
-----------------------------
SMITH BARNEY INC.
December 10, 1997
<PAGE>
EXHIBIT 99.3
[Merrill Lynch Letterhead]
CONSENT OF
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
December 10, 1997
Special Committee of the Board of Directors
Wyndham Hotel Corporation
Suite 2300
2001 Bryan Street
Dallas, Texas 75201
Dear Members of the Special Committee:
We hereby consent to the references to our opinion letter (the "Merrill
Lynch Opinion") dated April 14, 1997, to the Special Committee of the Board of
Directors of Wyndham Hotel Corporation ("Wyndham"), included as Annex J to the
Joint Proxy Statement/Prospectus which forms a part of the Post-Effective
Amendment No. 1 to the Registration Statement on Form S-4 ("Post-Effective
Amendment No. 1") relating to the proposed merger of Wyndham with and into
Patriot American Hospitality, Inc., and to the references therein to such
opinion under the captions "Summary--Opinion of Financial Advisors," "The Merger
and Subscription--Background of the Merger," and "The Merger and Subscription--
Opinion of Wyndham's Financial Advisors," and to the references to the Merrill
Lynch Opinion included in the Joint Proxy Statement/Prospectus Supplement which
forms a part of Post-Effective Amendment No. 1 under the caption "Recent
Developments-Merrill Lynch Discounted Cash Flow Analysis."
In giving such consent, we do not admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act
of 1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder, nor do we thereby admit that we are experts with respect
to any part of such Registration Statement within the meaning of the term
"experts" as used in the Securities Act of 1933, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
By: /s/ Kurt N. Simon
---------------------------
Name: Kurt N. Simon
Title: Vice President
Investment Banking
<PAGE>
EXHIBIT 99.12
PROXY
PATRIOT AMERICAN HOSPITALITY, INC.
PATRIOT AMERICAN HOSPITALITY OPERATING COMPANY
3030 LBJ FREEWAY, SUITE 1500, DALLAS, TX 75234
PROXY FOR SPECIAL MEETINGS OF STOCKHOLDERS TO BE HELD ON DECEMBER 31, 1997
THIS PROXY IS SOLICITED BY EACH OF THE BOARD OF DIRECTORS OF PATRIOT REIT
AND THE BOARD OF DIRECTORS OF PATRIOT OPERATING COMPANY
The undersigned hereby constitutes and appoints Paul A. Nussbaum and Rex E.
Stewart, and each of them, as Proxies of the undersigned, with full power of
substitution in each, to represent the undersigned at the Patriot REIT Special
Meeting (as defined below) and the Patriot Operating Company Special Meeting
(as defined below) and to vote all shares of Common Stock of Patriot American
Hospitality, Inc. ("Patriot REIT") and all shares of Common Stock of Patriot
American Hospitality Operating Company ("Patriot Operating Company") which the
undersigned may be entitled to vote at the Special Meetings of Stockholders of
Patriot REIT and Patriot Operating Company to be held at the Wyndham Anatole
Hotel, located at 2201 Stemmons Freeway, Dallas, Texas, at 9:30 a.m. and 10:30
a.m. local time, respectively, on December 31, 1997, and at any adjournments or
postponements thereof (the "Patriot REIT Special Meeting" and the "Patriot
Operating Company Special Meeting," respectively).
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1, "FOR" PROPOSAL 2, AND "FOR" PROPOSAL 3. IN
THEIR DISCRETION, THE PROXIES ARE EACH AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE PATRIOT REIT SPECIAL MEETING AND THE
PATRIOT OPERATING COMPANY SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF. A STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE RESPECTIVE BOARDS
OF DIRECTORS' RECOMMENDATIONS NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT
IN THE ENCLOSED ENVELOPE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE.
SEE REVERSE SIDE
<PAGE>
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
EACH OF THE BOARD OF DIRECTORS OF PATRIOT REIT AND PATRIOT OPERATING COMPANY
RECOMMENDS A VOTE "FOR" PROPOSALS 1, 2 AND 3.
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of April 14, 1997, between Patriot REIT and Wyndham Hotel
Corporation, as thereafter ratified by Patriot REIT and Patriot Operating
Company, and as thereafter amended by Patriot REIT, Patriot Operating
Company and Wyndham Hotel Corporation, and the transactions contemplated
thereby.
Patriot REIT........................... [_] FOR [_] AGAINST [_] ABSTAIN
Patriot Operating Company.............. [_] FOR [_] AGAINST [_] ABSTAIN
2. To consider and vote upon a proposal to amend the Pairing Agreement, dated
February 17, 1983, as amended, between Patriot REIT and Patriot Operating
Company.
Patriot REIT........................... [_] FOR [_] AGAINST [_] ABSTAIN
Patriot Operating Company.............. [_] FOR [_] AGAINST [_] ABSTAIN
3. To consider and vote upon a proposal to amend and restate the Amended and
Restated Certificate of Incorporation of Patriot REIT or Patriot Operating
Company, as the case may be.
Patriot REIT........................... [_] FOR [_] AGAINST [_] ABSTAIN
Patriot Operating Company.............. [_] FOR [_] AGAINST [_] ABSTAIN
4. To consider and act upon any other matters that may properly be brought
before the Patriot REIT Special Meeting or the Patriot Operating Company
Special Meeting and at any adjournments or postponements thereof.
THE UNDERSIGNED HEREBY
ACKNOWLEDGE(S) RECEIPT OF A COPY
OF THE NOTICES OF THE PATRIOT
REIT SPECIAL MEETING AND THE
PATRIOT OPERATING COMPANY
SPECIAL MEETING, THE JOINT PROXY
STATEMENT/PROSPECTUS AND THE
ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS SUPPLEMENT
WITH RESPECT THERETO AND HEREBY
REVOKE(S) ANY PROXY OR PROXIES
HERETOFORE GIVEN. THIS PROXY MAY
BE REVOKED AT ANY TIME BEFORE IT
IS EXERCISED.
DATED:
---------------------------------
SIGNATURE
---------------------------------
SIGNATURE
NOTE: PLEASE SIGN EXACTLY AS
NAME APPEARS HEREON. JOINT
OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR
GUARDIAN, PLEASE GIVE FULL TITLE
AS SUCH.
<PAGE>
EXHIBIT 99.13
PROXY
WYNDHAM HOTEL CORPORATION
1950 STEMMONS FREEWAY, SUITE 6001, DALLAS, TX 75207
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 31, 1997
(RESCHEDULED FROM DECEMBER 12, 1997)
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints James D. Carreker and Anne L.
Raymond, and each of them, as Proxies of the undersigned, with full power of
substitution in each, to represent the undersigned at the Wyndham Special
Meeting (as defined below) and to vote all shares of Common Stock of Wyndham
Hotel Corporation ("Wyndham") which the undersigned may be entitled to vote at
the Special Meeting of Stockholders originally scheduled to be held on December
12, 1997, which has been rescheduled and now is to be held at 8:30 a.m. local
time, on December 31, 1997, at the Wyndham Anatole Hotel, located at 2201
Stemmons Freeway, Dallas, Texas, and at any adjournments or postponements
thereof (the "Wyndham Special Meeting").
WHEN PROPERLY EXECUTED, THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS GIVEN, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1. IN THEIR DISCRETION, THE PROXIES ARE EACH
AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE
WYNDHAM SPECIAL MEETING AND ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. A
STOCKHOLDER WISHING TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATION NEED ONLY SIGN AND DATE THIS PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
UNLESS YOU HAVE PREVIOUSLY VOTED AND DO NOT WISH TO CHANGE YOUR VOTE.
SEE REVERSE SIDE
<PAGE>
[X] PLEASE MARK VOTES AS IN THIS EXAMPLE
1. To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of April 14, 1997, between Patriot American Hospitality,
Inc. and Wyndham, as thereafter ratified by Patriot American Hospitality,
Inc. and Patriot American Hospitality Operating Company, and as thereafter
amended by Patriot American Hospitality, Inc., Patriot American Hospitality
Operating Company and Wyndham, and the transactions contemplated
thereby. [_] FOR [_] AGAINST [_] ABSTAIN
2. To consider and act upon any other matters that may properly be brought
before the Wyndham Special Meeting and at any adjournments or postponements
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGE(S) RECEIPT OF A COPY OF THE NOTICE OF THE
WYNDHAM SPECIAL MEETING, THE JOINT PROXY STATEMENT/PROSPECTUS AND THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS SUPPLEMENT WITH RESPECT THERETO
AND HEREBY REVOKE(S) ANY PROXY OR PROXIES HERETOFORE GIVEN. THIS PROXY MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
YOU NEED NOT RETURN THIS CARD IF YOU HAVE PREVIOUSLY COMPLETED, DATED, SIGNED
AND RETURNED A PROXY CARD AND DO NOT WISH TO CHANGE YOUR VOTE.
DATED:
------------------------------------------
SIGNATURE
------------------------------------------
SIGNATURE
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. JOINT OWNERS SHOULD EACH SIGN.
WHEN SIGNING AS ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE GIVE FULL TITLE AS SUCH.
